McMaster may testify at Morris trial

e-mail this story to a friend Related Photo gallery • Earle Morris on trial

Court records show Attorney General Henry McMaster, whose office is prosecuting Morris, is on the witness list and defense attorney Joel Collins of Columbia said he wants him to testify. The attorney general also is the state's securities commissioner.

Collins argued that it would be "disingenuous" to prohibit the defense from asking McMaster why he didn't take action to prevent Carolina Investors from selling securities to the public when the company was in perilous financial condition.

Government attorneys have said that McMaster's office doesn't approve the sale of securities and only reviews securities issues to make sure risks are fully disclosed. McMaster took office in January 2003, about two months before Carolina Investors failed.

Circuit Judge James W. Johnson Jr. said he wouldn't prevent McMaster, who enforces the state's Uniform Securities Act, from testifying.

McMaster waited outside the courtroom in Greenville for about three hours Wednesday.

"The judge has asked that the parties not comment, so I have no comment," he said after court proceedings ended.

Among defense witnesses Wednesday was Adjutant General Stan Spears, who heads the state's National Guard. He testified as a character witness for Morris, saying he'd known Morris for 25 to 30 years and called him "one of the finest individuals I ever met."

Defense witness Clarence Gibson Jr., who at one point had $1 million in Carolina Investors and owned parent company HomeGold Financial stock, testified that he never talked to Morris about Carolina Investors.

Gibson testified that, like Morris, he relied on the statements of HomeGold officials, who he said left him feeling "very positive" about HomeGold.

Gibson, who grew up in Pickens but now lives in Greenville, testified that over the years he gradually withdrew money from Pickens-based Carolina Investors without trouble. He testified that at one point he owned 205,000 shares of HomeGold stock, having invested $87,000. He testified he had continued to buy the stock as the share price declined.

Earlier, after the government rested its case, Judge Johnson denied a request from Morris that he be acquitted of securities fraud charges.

Johnson ruled there was sufficient evidence for the six-man, six-woman jury to consider.

Defense attorneys said that eight days of testimony hadn't shown that Morris intended to defraud investors.

Prosecutors said they have shown ample evidence Morris engaged in a scheme to keep Carolina Investors' doors open even as Columbia-based HomeGold, a mortgage company, was running out of money.

"We believe we've met our burden," said Robert Hood, assistant attorney general.

According to state law, in ruling on the defense motion, Johnson only considered the existence of the evidence and not its weight.

Morris, 76, is charged with 22 counts of securities fraud stemming from his indictment in January by a state grand jury. The indictment charges that as chairman of Carolina Investors Inc., Morris between 1998 and March 2003 used a scheme or planned to defraud investors and that he made untrue statements or omitted key information in contacts with the firm's customers, who bought securities such as notes and debentures.

He has pleaded not guilty.

Carolina Investors' failure last year cost about 12,000 people, many retired and mostly from the Upstate, an estimated $278 million. They can expect to recoup about 18 cents for every dollar invested once the company is liquidated, bankruptcy officials have said.

Investors have testified Morris never warned them the company was sliding toward bankruptcy or that he had met with HomeGold officials, including former HomeGold Chairman Jack Sterling and former Carolina Investors President Larry C. Owen, to discuss the possibility of seeking a conservatorship, which prosecutors said would have frozen investors' assets.

Owen, 61 pleaded guilty in July to 22 counts of securities fraud related to accounts at Carolina Investors, and is awaiting sentencing. Sterling has denied wrongdoing.

Owen's wife, Anne, 51, former Carolina Investors senior vice president of investments, faces similar charges and is awaiting trial. She has pleaded not guilty.

Morris, a longtime Democrat who also has been state comptroller general and a state legislator, has said that the securities fraud charges against him are political. McMaster, a Republican who has overseen the state grand jury investigation into Carolina Investors' collapse, has denied the accusation.

Morris's attorneys said he was kept in the dark about the company's true financial condition and acted in good faith on information from HomeGold officials, whom the defense maintains controlled Carolina Investors' operations.

In court Wednesday, Collins said he wants McMaster to explain why the attorney general's office didn't pull Carolina Investors' registration for the sale of $220 million in notes and debentures, offered to the public April 1, 2002.

The firm's auditors had warned that HomeGold had sustained substantial operating losses, had a negative shareholders' equity of about $84 million at the end of 2001 and owed Carolina Investors millions of dollars in debt. The auditors raised doubt about Carolina Investors' ability to survive, but the company continued with its securities offerings.

"If the attorney general, acting as securities commissioner, with all of his sophisticated knowledge, all of his resources, would find it not only possible, find it compelling not to take any action and to proceed to approve everything that company was doing, that is very much corroboration of Mr. Morris's similar decision to accept those representations (from HomeGold officials)," Collins said. "Nothing could be more relevant to Mr. Morris' good faith defense than the fact that Mr. McMaster and his staff did the same exact thing."

Assistant Attorney General August G. "Tav" Swarat II said it is "absolutely a smokescreen" to fault McMaster's office for not shutting down Carolina Investors.

"If you go out and you rob somebody and I don't know about it, then you can come back and blame me," Swarat said. "That's about as straight an analogy as I can think of for what they're trying to do."