Judge likely to OK HomeGold asset plan

A federal bankruptcy judge is expected to approve a plan today to divvy up the remaining assets of HomeGold Financial and Carolina Investors, paying pennies on the dollar to investors owed more than $200 million.

Retired USC law professor Ralph McCullough is expected to be appointed trustee of Columbia-based HomeGold and its subsidiary, Carolina Investors of Pickens. He will oversee the company’s liquidation and sue people and companies that creditors say contributed to one of S.C.’s largest financial failures.

The companies filed for Chapter 11 bankruptcy in the spring with $300 million in debts. About $275 million was in junk bonds sold by Carolina Investors to 8,000 people, many of them retirees and other small investors in South Carolina.

Lawsuits pending against the company will be withdrawn, to be replaced by suits naming the outsiders, said Anderson resident Robert Pierce, chairman of the Carolina Investors creditors’ committee.

Among those being sued is Elliott Davis, the accounting firm that reviewed HomeGold’s financial statements. In its 2001 report, it warned of its “substantial doubt” that HomeGold would stay in business. The company said it did its job properly, but creditors have claimed the accountants were negligent.

HomeGold made mortgage loans to people with poor credit records. It made most of its revenues from fees, and quickly sold the loans to big banks.

To have money to lend, HomeGold received short-term loans from banks. That money wasn’t enough, so its Carolina Investors subsidiary sold high-risk, high-interest bonds to feed HomeGold’s cash needs.

The bonds were to be repaid from company revenues, but the company began losing money.

In the end, the company’s assets were sparse, leaving only enough to pay about 8 cents on every $1 invested in a Carolina Investors junk bond.

Pierce said McCullough, 62, and his team of 15 to 20 lawyers, accountants and other experts will go after money outside the bankrupt companies.

“The second pool of money is from the parties we feel are responsible for the demise of the company. Certain people and entities will be held accountable for their actions,” Pierce said.

The state grand jury is investigating the collapse of Carolina Investors and HomeGold. S.C. Attorney General Henry McMaster has not said how long that secret probe will continue.

Reach DuPlessis at (803) 771-8305 or jduplessis@thestate.com.