State's investors deserve better

e-mail this story discuss this issue in our forums Leroy Chapman • State's investors deserve better (06/04/03) • LIA is welcome advocate for the expelled (04/29/03) • Council simply wrong (04/03/03) • King day rift tells only half the story (02/20/03) • Council pandering to worst among us (02/05/03) More details E-mail Associate Editorial Page Editor Leroy Chapman Jr. at lchapman@greenvillenews.com.

It was nearly 10 years ago. The boss was Tracy Meyers, a relatively new attorney and deputy securities commissioner. Next in line was Chris Getty, an ambitious recent USC graduate with a master's in public administration and a missionary's zeal for pursuing the complaints that came through the office. Officially, he was the investigator.

Then there was me. I was an intern, working there between classes. I made about $5 an hour, one of my two part-time jobs.

And that, fellow South Carolinians, was the full roster of the state's securities enforcement team for the few months I worked for the agency back in 1994. By statute we had the authority to audit and investigate any securities firm doing business in South Carolina.

And this is scary: For a class of investor — those who bought securities from state-based companies doing business only in South Carolina — we were the only regulatory authority overseeing those companies. Unbeknownst to me, this included the thousands of investors who held securities issued by a Pickens-based firm called Carolina Investors.

I knew then such a thin, inexperienced staff was bad government. But perspective provides an even harsher view: South Carolina was derelict in its duty to protect its investors.

While other states had a full complement of auditors, attorneys and investigators, South Carolina's enforcement team would routinely fit into a booth at the nearby Lizard's Thicket. And we'd still have room for a guest.

Today, the securities division is far more experienced than in those days, but not much bigger. More importantly, though, Attorney General Henry McMaster holds a higher opinion of the office he inherited. He will oversee a major, historic expansion.

Gov. Mark Sanford signed a bill Wednesday that gives the securities division $1 million so McMaster can hire the attorneys, auditors and investigators he needs to adequately enforce the state's securities laws. South Carolina has traditionally spent the least amount of any state on securities regulation and enforcement.

This can no longer be the case, and not simply because of the Carolina Investors saga. The working class has now become the investor class. As more South Carolinians invest in securities, this state is obligated to give the enforcement team the tools it needs to undertake even the most complex investigations. Such as the ongoing probe of Carolina Investors. In that company's bankruptcy proceeding, 8,000 Upstate investors will likely lose $275 million. This bill will give the state the expertise it needs to comb the books and find out if there was wrongdoing.

During my brief stint with the securities division, the limitations of the office weren't the only things I learned. I witnessed the con artists in this state who, without shame or the least bit of hesitancy, will rob old folks, widows and orphans.

Some of the cases have never left me. One involved a Pee Dee widow who complained to the office after losing most of what her husband left her. The dead husband's best friend, a broker, lost all of her money in high-risk options to which she never agreed. The office's complaint file is often littered with such heartbreakers.

To the division's credit, cases where fraud is obvious and merits a criminal charge are routinely prosecuted in conjunction with the State Law Enforcement Division. The state has a decent track record of taking down the occasional Ponzi scheme.

Where this state is failing is in its duty to ensure that otherwise legitimate securities dealers — especially those based in South Carolina and selling exclusively to state residents — are operating within the confines of the law, observing industry best practices and making full disclosures with investors about the risk of their products.

It boils down to basic regulatory oversight, which for too long this state has executed poorly. Too bad it took fallout from the Carolina Investors saga to prod the state in the right direction.