New protection for investors

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more staff. But changes in law

and more disclosure still needed.

South Carolina, which spends less on securities enforcement than any state in the union, will raise by $1.2 million various registration fees to add attorneys, auditors and investigators to the state's Securities Commission to combat fraud.

The bill, authored by Sen. Larry Martin, R-Pickens, will also allow the hiring of a prosecutor and forensic accountant. Together, they give the state new expertise to prosecute securities fraud.

This is a long missing layer of protection for a class of South Carolina investors who risk hard-earned capital with only minimal state oversight. However, the job remains half done.

Still left are warranted changes in state law that spell out the responsibilities of state-based securities dealers who offer products solely to state-based investors. Federal regulators do not have jurisdiction over such South Carolina companies. Our state law should be amended so that companies the state regulates are not exposing investors to undue risk.

Carolina Investors, the Pickens-based company that recently filed for Chapter 11 bankruptcy, is an example of a state-based securities dealer operating without federal oversight. Carolina Investors sold only to South Carolina residents. About 8,000 mostly Pickens County investors may lose $275 million in deposits.

An investigation by the Attorney General's Office is ongoing. So far, no charges have been filed against Carolina Investors officials or against its parent, HomeGold Financial. No malfeasance has been discovered.

Still, South Carolina has, at the very least, a responsibility to make sure such state-based securities dealers are making clear disclosures about risk in plain-spoken, universally understood terms. The state should also amend the law to put the burden on those firms to ensure investors' risk-tolerance match the investment product. Carolina Investors' bonds, as many investors knew, were not federally insured.

Retirees, for example, typically do not possess the mix of assets and income recommended to delve into such high-risk investments. Had Carolina Investors been obligated by law to determine the risk-tolerance of its customers before selling its bonds, it is likely those investors would have been discouraged — if not prohibited — from sinking their nest eggs into the firm.

With Gov. Mark Sanford's signature, South Carolina has improved the investment climate by simply giving the state the manpower to exercise its regulatory authority.

In the spirit of the federal Sarbanes Oxley Act, shoring up the grand jury's capabilities sends a strong message to the financial community that malfeasance will have criminal, not just civil, consequences.

But the surest way to avoid future calamity is consistent day-to-day oversight authorized by an amended state law.