Ex-Carolina Investors chief indicted

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Larry C. Owen, 60, of Easley, was indicted by the state grand jury investigating the collapse of the Pickens-based company. If convicted, Owen faces a maximum penalty of 206 years in prison and more than $1 million in fines.

Owen said late Thursday, "I personally can't make any comments because I don't really know anything about the indictments."

Carolina Investors and HomeGold, a mortgage company, filed for bankruptcy protection last spring, declaring they owed creditors an estimated $275 million. About 8,000 people had deposits in the company, which closed in March.

Owen was president of Carolina Investors from 1989 until this year and also served for most of that time as the company's chief executive officer.

Thursday's indictment alleges that Owen used a "scheme" to defraud investors.

The indictment alleges Owen used false statements and omitted facts about the troubled company to induce investments or prevent a "run on the money." At one point, according to the indictment, Owen asked employees to notify him when any investor wanted to withdraw money, so he could persuade them not to take it out.

"Owen telephoned investors at their homes after learning they had made withdrawals to reprimand them about their withdrawals and to fraudulently persuade them to re-invest the withdrawn funds in Carolina Investors," according to the indictment.

The company began in 1963 financing the sale of cemetery plots. It eventually began lending operations, including loans for small construction, cars and appliances.

In 1995, according to the indictment, Carolina Investors' parent company began a series of inter-company loans, borrowing $15 million. Carolina Investors stopped its external lending activities and focused on selling debt securities to fund its parent company's operations, according to the indictment.

Three years, later, HomeGold "suffered substantial operating losses," according to the indictment. It began to buy back bonds it sold in a $125 million offering, repurchasing the bonds at 37 to 60 percent of their face value "reflecting concern in the bond market that HomeGold's financial condition would prevent it from paying the bonds when due," according to the indictment.

Carolina Investors, however, continued selling securities at 100 percent of the face value, according to the indictment.

HomeGold continued to lose money, even after merging with another firm, according to the indictment.

"Despite the massive losses, continuously unprofitable operations, continuing financial instability of HomeGold and the increasing inter-company debt," Carolina Investors in April 2002 issued a prospectus in connection with the sale of $180 million floating rate notes and $40 million in subordinated debentures, according to the indictment.

The company's accounting firm, Elliott Davis, explained that "auditors had substantial doubt as to whether Carolina Investors would be able to stay in business as a growing concern," according to the indictment.

Owen, the indictment alleges, misled investors about the company's financial condition and resisted the auditor's concerns, fearful that "the negative information, which was included in the prospectus, might dissuade potential investors from investing or influence existing investors to withdraw their investments."

In late August or September of 2002, according to the indictment, Owen supplemented the prospectus with a "false and misleading" letter "designed to deceive investors as to the seriousness of the warnings contained in the prospectus."

Owen told investors auditors' concerns "resulted from overly cautious auditors nervous about the Enron scandal," according to the indictment.

When investors asked about unfavorable information about the company, the indictment alleged, Owen told investors it amounted to "rumors spread by competitors and others." Carolina Investors, he told them, had been in business for 40 years and never lost a dime, the indictment alleges.

The indictment alleges other false statements from Owen, including: representations that if HomeGold went under, Carolina Investors and its investors' money would be safe, that HomeGold was in the best financial condition in 2002 it had been in four years; that Carolina Investors held $300 million in assets; that investments in the company were "as safe as those in any bank;" and that the company was "solid, super solid and financially sound."

The indictment also alleges that Owen made false statements or omitted material facts to 21 people. The indictment alleges Carolina Investors was "robbing Peter to pay Paul."

Owen is scheduled to be arraigned in Columbia this morning, said state Attorney General Henry McMaster. The indictments are the first in an investigation that began in June, he said.

"These kinds of investigations take time and this one is not over," he said.

The indictments are also the first since the Legislature gave the state grand jury the authority to examine investment acts earlier this year.

Staff writer David Dykes contributed to this report.