Senate panel approves securities bill

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The action came after State Attorney General Henry McMaster told senators that the Carolina Investors situation is "a real catastrophe" and the state lacks good tools to probe and prosecute fraud.

The bill, introduced last week, also would change the length of time investors would have to sue in the case of fraud and would expand those who could be sued to include those assisting in securities violations.

The legislation was filed in response to the closing of Pickens-based Carolina Investors two weeks ago, though McMaster and lawmakers said Tuesday they were not alleging any fraud or wrongdoing by anyone at Carolina Investors.

McMaster has suggested raising the fees of the state's securities brokers and dealers to provide the $1 million he said his office needs to properly investigate such cases. The added money would bring new staff to his agency's securities division and to the State Grand Jury.

HomeGold Inc., the Lexington-based parent company of Carolina Investors, filed for Chapter 11 bankruptcy protection last week, saying it owed $275 million to Carolina Investors. The Pickens firm has indicated it intends to seek bankruptcy protection as well.

Officials told senators Tuesday that the legislation would not return any money to investors but could possibly be used retroactively in lawsuits.

Maurice Washington, a Charleston financial and insurance advisor, said he saw nothing wrong with legislation that improved investors' confidence.

"The citizenry should always be our first priority," he said. "I think the consumers need to feel if they are wronged in any way with respect to the management of their monies by brokers or investment firms, the punishment should be stiff."

McMaster said the bill would help the state improve its investigation of securities fraud by allowing the use of the State Grand Jury. The panel, formed in 1989, can subpoena records and compel testimony, something no county grand jury can do.

"In a sophisticated area like this, the only way to investigate it is with sophisticated tools," he said. "The only sophisticated investigatory tool in the state arsenal is the State Grand Jury. Today, there is no powerful way in the state of South Carolina to investigate criminal securities fraud."

The Statewide grand jury now is limited to investigating cases of drugs, pornography, election fraud, public corruption, computer crime and terrorism.

Also urging passage were two sponsors of the bill, Sen. Larry Martin, a Pickens Republican, and Sen. Ralph Anderson, a Greenville Democrat.

Both lawmakers said many of their constituents had lost life savings in the closing of Carolina Investors.

Anderson said one church had invested $400,000 to build a new sanctuary.

"This whole issue begs for action on our part," Martin said.

Senate Majority Leader Glenn McConnell, who also chairs the Senate Judiciary Committee, also sponsored the bill.

While there was no opposition to the bill at the hearing, some senators did object to a plan to fund future investigations if the bill becomes law.

McMaster said South Carolina spends less per capita on securities probes than any other state in the nation.

But some senators called the increased fees a tax and asked McMaster how the Republican who initiated a no-tax pledge among Republican office holders could support such raising taxes.

Sen. Robert Ford, a Charleston Democrat, called the fee increase a "back door tax increase."

McMaster replied that the fees, even after the increase, would still be below what most states charge brokers to register.

"I think the one thing that people in this state hate worse than taxes is criminals," he said. "And if we're going to catch criminals who are doing this and hurting the people of this state, the money has got to come from somewhere."

The matter will be taken up by the Senate Finance Committee, now debating the budget.

Washington said he did not oppose the fee increase if lawmakers do a careful analysis first to determine it's needed.

Gov. Mark Sanford said Tuesday he was not familiar with the legislation.

"We have redress in the current legal system against anybody, as I understand it," Sanford said. "If it's legislation that strengthens the investor's hand in being able to get at wrongdoing, I don't have a problem with that. If it is fig leaf legislation that simply replicates what we currently do in the court system, then I'm not for redundancy as it goes to lawmaking."

The bill next goes to the Senate floor and if passed, to the House.