COLUMBIA, S.C. - State law kept regulators from revealing problems at Carolina Investors and its parent company HomeGold Financial - problems that surfaced as early as 1999.

In the ensuing years, hundreds of millions of dollars were pumped into Carolina Investors by people who had no idea of the problems and many of whom now stand to lose all but a few pennies on the dollars they put into the company.

In a December 1999 letter, state securities examiner Eric W. Pantsari asked Carolina Investors president Larry C. Owen "what action(s) can or will be taken to ensure Carolina Investors' continued existence should HomeGold default?"

The letter was among several obtained by The (Columbia) State newspaper in a request to the attorney general's office under the Freedom of Information Act.

When Pantsari wrote his letter, HomeGold owed $67.6 million to Carolina Investors. After the regulators' letter, Carolina Investors sold $565 million in three separate securities offerings. Those securities are now almost worthless.

The public never learned of regulators' anxieties about Carolina Investors and HomeGold because state officials cannot issue statements about the financial health of companies, state Attorney General Henry McMaster said.

"South Carolina law does not provide for the securities division or any other state entity to gauge the health of a company and say whether individuals should or should not invest," he said.

That explanation is unlikely to sit well with the 8,000 investors from South Carolina who will find out this week just how little their investment is now worth. A U.S. Bankruptcy Court hearing Thursday will detail the liquidation of Carolina Investors and HomeGold.

"The state should have stepped in and pulled the plug years ago," said Robert Pierce, chairman of a committee made up of those owed money due to Carolina Investors' bankruptcy. "There was enough information available that the state could have done something and prevented the longer range problems than went on for years."

Some lawmakers say it might be time to revise state law.

"It's going to make it tough for a company with problems because everyone's going to want to bail out," said Rep. Rex Rice, R-Easley, whose district includes hundreds of residents who lost money they invested in Carolina Investors. "But the public ought to have some opportunity to find out what's going on before their money's gone."

Carolina Investors answered only to state regulators because their securities were sold only inside the state.

It wasn't state regulators' job to approve the offerings, just to review them and ensure they accurately disclosed the risk to investors, state officials say.

Those disclosures were made in prospectus filings. McMaster said his office recently reviewed Carolina Investors' prospectus filings from 1999 to 2002 "to see if there was anything we missed."

"And, based on the answers given to us, the information appeared accurate," he said. On at least one occasion, McMaster said regulators had questions about information in a Carolina Investors offering.

"Those questions were presented to Carolina Investors, and we received answers to those questions," he said. "The prospectuses and the answers given appear accurate on their face, and we had no further reason to question them."

However, the state grand jury is investigating the collapse of Carolina Investors and HomeGold. McMaster would not say how long that investigation will continue.

Information from: The State