The S.C. taxpayer tab for outside attorneys and accountants hired in connection with investigations into the mystery $1.8 billion could run up to more than $5 million, records show.
And so far, no state agencies are claiming their share of the $1.8 billion, while a state task force created by the governor more than three months ago to investigate the matter still won’t say publicly whether the money even exists.
For the fiscal year that started July 1, lawmakers designated $3 million for “audit contracting” through the state Department of Administration, which later this month awarded a contract with a “potential” $3 million value to a global consulting firm to provide “forensic accounting services” in reviewing the $1.8 billion, according to online department and state budget records.
Lawmakers also appropriated another $1.8 million for outside legal fees through the S.C. Attorney General’s Office, which, according to records recently provided to The Nerve by the office under the state open-records law, hired an international law firm to defend the state in a related federal Securities and Exchange Commission (SEC) investigation.
The combined $4.8 million provided to the Attorney General’s Office and Department of Administration would come out of state surplus funds, budget records show.
Separately, the S.C. Comptroller General’s Office hired two law firms to represent the agency in the SEC investigation, which has been ongoing since at least last summer, according to records recently provided by the office under the S.C. Freedom of Information Act. A “current” maximum collective $330,000 is designated for the two firms, according to an agency spokeswoman.
The most recently available records from the Comptroller General’s and Attorney General’s offices show that a total of $747,156 as been paid to the three law firms.
To put the possible total $5 million-plus taxpayer cost of the hired outside help into some context, it would be larger than the current overall budgets of several state agencies, including, for example, the State Ethics Commission and Department of Consumer Affairs.
And the disputed $1.8 billion is far more than the total budgets of most state agencies. As The Nerve previously has pointed out, it equates to more than $300 for every man, woman and child in South Carolina; or, according to the South Carolina Policy Council – The Nerve’s parent organization – up to $1,440 per taxpayer, based on a formula similar to the one used for state taxpayer rebates in 2022.
The Policy Council in April recommended rebating the full amount to taxpayers if no state agencies claimed the money by June 30 or if agencies couldn't provide evidence by then of their share of the funds.
Republican Gov. Henry McMaster on April 11 created a task force made up of representatives from six state agencies, including the Governor’s Office, to investigate the $1.8 billion and gave the panel a July 1 deadline – which has long since passed – to find answers, according to the Department of Administration and media reports.
The “working group,” which typically has been meeting secretly on a weekly basis since April, as The Nerve previously revealed, has included staffers from the offices of the governor, attorney general, treasurer, comptroller general and auditor, as well as from the Department of Administration, according to “meeting notes” provided by the department to The Nerve.
Treasurer Curtis Loftis, Comptroller General Brian Gaines, Auditor George Kennedy and Department of Administration Executive Director Marcia Adams routinely have attended meetings, records show.
In a written response Friday to The Nerve, Department of Administration spokeswoman Brooke Bailey again didn’t directly answer whether the $1.8 billion actually exists, saying that the task force and the newly hired global consulting firm are “working to determine the existence, purpose and intended destination of the $1.8 billion in question.” She added that a report, based on the consulting firm’s “review of the state’s cash and investments,” is due by Dec. 31.
To date, the task force is “not aware of state agencies’ claims to the $1.8 billion,” Bailey also said, repeating an earlier answer to The Nerve.
‘Attorney work product’
It’s unclear whether the $1.8 billion – if it exists – is made up of state, federal or “other” funds, which include such things as state gasoline taxes, lottery proceeds, college tuition, part of the state sales tax earmarked for K-12 education, and court fees and fines.
The Nerve in May revealed that as of mid-April, the state had a total of more than $9 billion in other fund reserves. The total state fiscal 2024-25 budget, which includes state, federal and other funds, is $42.2 billion.
The disputed $1.8 billion was the subject of a critical 116-page interim report released in April following an investigation by a Senate Finance subcommittee chaired by Sen. Larry Grooms, R-Berkeley. The report accused Loftis of failing to disclose the funds for seven years “despite his explicit statutory duty to do so.”
After Gaines in an October 2023 letter asked Loftis to investigate a related cash balance, the Senate Finance Committee researched the matter and determined the fund had a balance of about $1.8 billion, according to the subcommittee's report.
That discovery followed a separate subcommittee investigation in 2022 into a $3.5 billion accounting error, which, according to the report, stemmed from an earlier conversion to a different state accounting system and occurred during the tenure of ex-Comptroller General Richard Eckstrom, a Republican who resigned in April 2023 after 20 years in office.
Grooms has said publicly that Loftis, a Republican who was first elected in 2010, should resign. Loftis has denied all allegations, publishing a lengthy defense on his agency’s website, which, among other things, contends that the $1.8 billion is “not missing or recently discovered,” and that his office has been “fully transparent about the matter.”
The Nerve last month submitted a Freedom of Information Act request to the Treasurer’s Office asking, among other things, for the names of the financial institutions where the $1.8 billion, if it exists, currently is deposited. The Nerve’s request cited “SCEIS Fund 30350993,” which was identified multiple times in a March 14 letter from Loftis to Grooms.
In a July 11 written response, the Treasurer’s Office denied The Nerve’s request, contending the bank records, “to the extent that they exist,” are exempt under the open-records law as “any and all records” related to the fund are considered “attorney work product of the Governor’s Working Group.”
The Freedom of Information Act, however, doesn’t require the Treasurer’s Office to exempt the requested records, but only allows it to do so.
SEC probe
At the end of January this year, the Attorney General’s Office hired the Atlanta-based King & Spalding law firm, according to a retention agreement for "special counsel” regarding the “Securities and Exchange Commission Matter.” The firm on its website says it has more than 1,300 attorneys in 24 offices worldwide.
The agreement, which the office provided earlier this month to The Nerve under the Freedom of Information Act, says the firm will “represent the State in connection with an SEC investigation, ” listing it as “In the Matter of State of South Carolina, A-04055,” though it doesn’t give details of the probe.
The Nerve in June revealed that King & Spalding lawyers with experience in handling Securities and Exchange Commission matters were hired by the S.C. Attorney General’s Office to represent the state in connection with the $1.8 billion. The Nerve obtained the retention agreement after that story was published.
The Attorney General’s Office earlier told The Nerve it doesn’t discuss pending investigations, while an SEC spokesman said the federal agency doesn’t comment “on the existence or nonexistence of a possible investigation.”
The retention agreement appears to indicate that the investigation could be a civil or administrative case, noting that the Attorney General’s Office “in its sole discretion” could designate assistants to “oversee the litigation,” and that the office must be “included in any settlement discussions.”
On its website, the SEC says its mission is to “protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.”
The SEC is responsible for bringing civil and administrative actions for violations of federal securities laws, and partners with law enforcement agencies to “bring criminal cases when appropriate,” according to its website.
No one has accused any S.C. officials of any criminal wrongdoing.
Asked for details about investment income from the $1.8 billion, the state Treasurer’s Office in its July 11 response to The Nerve said it couldn’t provide that information, noting the agency “does not invest by SCEIS fund, it invests in pooled investment portfolios.”
Yet according to the Senate Finance subcommittee's report, Loftis claimed during sworn testimony in April that the $1.8 billion fund “earned $225 million in interest that has been spent by the General Assembly.”
“If his claim is accurate, then his failure to disclose the fund may have impaired the General Assembly’s fiduciary responsibility to ensure proper application of the earnings,” the April 16 report contended.
The “meeting notes” of the June 4 meeting of the governor’s task force first indicated that King & Spalding attorneys “provided legal advice” to the group, though no specifics on the discussion were listed. Firm attorneys have attended subsequent weekly meetings virtually, according to meeting notes.
Under the retention agreement, five identified King & Spalding lawyers would be paid hourly rates ranging from $945 for an associate attorney to $1,405 for a firm partner, with $200-$500 hourly rates for paralegals, project assistants and other attorneys. The contract also covers approved expert and consultant fees, as well as travel and overnight lodging expenses.
Republican Attorney General Alan Wilson signed the agreement on Jan. 30. Through April 30, lawyer and other personnel fees totaled $503,507, records provided to The Nerve show.
Also included with those records was a formal request by Wilson’s office to the state Executive Budget Office (EBO), which is part of the Department of Administration, to use $1.8 million in non-recurring funds to “retain outside counsel to represent the State’s interests” in a “complex securities matter.”
The request noted that the Attorney General’s Office “does not have the necessary expertise to defend the State in this complex securities matter,” though no details of the “matter” were provided in the document. The $1.8 million would be needed through the remainder of this calendar year, according to the request.
In a recent written response to The Nerve, Assistant Deputy Attorney General Harley Kirkland said the request was made to the EBO on April 10 – the day before McMaster created the special task force, according to the Department of Administration.
Kirkland said the Legislature subsequently approved the request, providing The Nerve with the conference committee’s budget version approved last month, which listed the $1.8 million only as “legal fees.”
Under the retention agreement, the Attorney General’s Office “understands that the cost of handling matters is not predictable and that the Special Counsel has not made a commitment or promise as to the maximum fees and expenses necessary to complete the Matter.”
Other outside help
Last summer, Comptroller General Gaines hired the Wyche law firm, which has offices in Greenville, Spartanburg and Columbia, to represent his agency on “Issues Regarding SEC Investigation,” though no details of the probe were included in the copy of the agreement provided to The Nerve, which appeared to have at least one paragraph deleted.
Under the Aug. 31 agreement, which involves the firm’s Columbia office, “discounted” hourly rates for firm partners and associates involved with the case were listed at $500 and $300, respectively, with hourly rates for paralegals set at $230. Other legal costs and travel expenses are covered under the agreement.
From August 2023 through May this year, paid legal fees and costs totaled $170,233, according to records provided by Gaines’ office under the open-records law.
Besides the Wyche firm, Gaines approved hiring the Atlanta law firm of Robbins Alloy Belinfante Littlefield to represent “certain employees” in his office in the SEC investigation, according to a May 13 agreement. As with Wyche, no details about the probe were listed in the copy of the agreement provided to The Nerve, which appeared to have several paragraphs deleted.
Among other practice areas, the law firm, which bills itself as “One of Atlanta’s Leading Litigation and Regulatory Firms,” represents “whistleblowers” in SEC cases, according to its website.
Under the retention agreement, the top hourly “discounted” rate for firm partners is $595, while other attorneys who might assist would be paid $395 to $495 per hour, with legal assistants' hourly fees set at $205. The agreement also covers other related costs, including travel and lodging.
Through June, the firm was paid a total of $73,416 in legal fees and costs, records from Gaines’ office show.
In a written response Monday to The Nerve, comptroller general spokeswoman Kimberly McLeod said the “current” maximum amount designated for legal fees and costs is $80,000 and $250,000 for the Robbins and Wyche firms, respectively.
Representatives from the state treasurer’s and auditor’s offices, as well as the Department of Administration, said in recent written responses to The Nerve that they have hired no outside attorneys to represent their respective agencies in connection with investigations into the $1.8 billion, or had no related records.
Deep numbers dive
Four days after last month’s related Nerve story was published, the Department of Administration formally started the process to hire an “independent forensic accounting firm” to review “all cash and investments held in the State Treasury,” according to online department records.
Under the “request for proposal,” which was posted on June 24, the awarded contractor “must, as part of the forensic accounting review, provide findings and recommendations for any corrective entries and actions necessary, along with recommendations for procedures and controls to be implemented in the future.”
The proposal said the $1.8 billion “issue” was identified as “part of the $3.5B restatement,” referring to the $3.5 billion accounting error that occurred during former Comptroller General Eckstrom’s tenure.
“The State does not have an understanding at this time that any criminal and/or unauthorized activity occurred,” the proposal noted, though adding, “It is possible that the forensic services performed by the firm could identify information suggesting conclusions contrary to the current understanding.”
Forensic accountants can work in criminal or civil investigations, using “accounting, auditing and investigative skills when conducting an investigation,” according to the Institute of Certified Forensic Accountants, which has a U.S. office in Delaware.
On July 17, the Department of Administration posted an online notice that it had awarded a contract with a “potential value” of $3 million, which would run from July 18 to next June 30, to AlixPartners LLP in Washington, D.C.
Among other services, the consulting firm, which is headquartered in New York and has 25 offices worldwide, on its website says its brings “hands-on experience to recommending, designing, and implementing enhancements to internal accounting controls, and conduct monitoring and testing of policies and procedures pursuant to settlement agreements.”
The site also notes that many of its staff members have “extensive experience presenting to" the Securities and Exchange Commission and other regulators to “help clients restore credibility to their financial reporting.”
Under a proviso in the current state budget, an interim audit report from the awarded contractor must be submitted to the governor, Senate president, House speaker and chairmen of Senate Finance and House Ways and Means committees by Sept. 30, with a final report due by Dec. 31.
But the Department of Administration can “in its sole discretion” extend the audit completion date “if necessary,” according to the proviso.
Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394-8273 or
