GREENVILLE — South Carolina Attorney General Henry McMaster — called by the defense to testify in the securities fraud case his office is prosecuting against former Lt. Gov. Earle E. Morris Jr. —said his office cannot stop people from making risky investments.

Risk cannot be legislated away, McMaster told a jury Thursday.

“We cannot make public statements about the health, or lack of health, of a company or advise (potential investors) to invest in one over the other,” said McMaster, called as a hostile witness by Morris’ defense lawyers.

The defense wants to show that Morris, as chairman of Carolina Investors, relied on information given him by its parent, HomeGold Financial Inc. of Columbia.

To accomplish this, his attorneys want to show how other people fell for the same lies — including the attorney general’s office, which runs the state’s securities commission.

Morris’ attorneys showed letters from commission staffers raising concern about the relationship between Carolina Investors and its parent going back to the late 1990s.

Yet each year the subsidiary was allowed to remain in business until its 2003 collapse, suggesting securities officials also were duped.

But because that defense implies the state did not act when it could have, prosecutors say the defense is improperly using a “third-party guilt” defense.

Before their boss took the witness stand, lead prosecutor Sherri Lydon expressed her concern to Judge James W. Johnson Jr. that Morris’ attorneys were treading into dangerous territory. She wanted the defense to go through a “proffer”— a dry run of their questioning of McMaster away from the jury.

“We’ve been bit several times,” Lydon said.

“I resent that, your honor,” defense attorney Joel Collins quickly responded. “I haven’t bit her at all.”

Most of McMaster’s testimony revolved around a back-and-forth with defense attorney Kathleen Schultz over the law governing the securities commission.

McMaster said he believes fraud and intent must be shown before his office can shut down an operation.

Although he took office just two months before the spring 2003 failure of the companies, McMaster said he believes the full intent of the fraud was not known until the actual failure.

So did the defense strategy of calling McMaster to testify work?

Morris’ defense team asked the judge to strike from the record several statements that McMaster made about how he interprets law, specifically about fraud and intent.

Johnson denied the motion, saying, “Ms. Schultz asked the question; you’re stuck with the answer.”

Reach Werner at (803) 771-8509 or bwerner@thestate.com.