Under questioning last April at a state legislative hearing, longtime S.C. Treasurer Curtis Loftis answered “yes” when asked by then-Sen. Mike Fanning if the mystery $1.8 billion was “real money that I can touch,” and if it could be withdrawn “today.”
Loftis, a Republican who was first elected in 2010, also agreed with Fanning, a Fairfield County Democrat who lost his reelection bid last year, that the $1.8 billion had earned “roughly $225 million in interest.”
But the treasurer’s statements, which were made at the April 2, 2024, hearing of a Senate Finance subcommittee, stand in stark contrast to the findings in a report issued two weeks ago by a global consulting firm hired by the S.C. Department of Administration, as directed under a state budget proviso, to investigate the $1.8 billion and related issues.
Among its findings, the New York-based AlixPartners concluded in its 65-page report that about $1.6 billion of the $1.8 billion is “not actual cash (i.e. it cannot be spent nor appropriated),” but rather reflected balances that were “incorrectly reported” to a special fund created as part of a years-long conversion to a different state accounting system.
The remaining approximately $200 million is “already included in the reported bank balances of the STO (State Treasurer’s Office)” and “belongs” to the state’s General Fund, the report said.
The report was released publicly on Jan. 15, just hours after The Nerve revealed the growing state taxpayer cost of a related federal investigation. The Nerve has since learned of an additional $4 million requested by the state Attorney General's Office for outside legal fees in connection with that investigation, which already has cost state taxpayers a total of more than $3 million as of this week.
The estimated taxpayer cost of the AlixPartners report could be at least $2.7 million.
Sen. Larry Grooms, R-Berkeley, who chaired the April 2024 Senate Finance subcommittee hearing, has repeatedly called on Loftis to resign. Last Thursday, S.C. Auditor George Kennedy resigned from his appointed office, just two days after a full Senate Finance Committee hearing on the AlixPartners report, which also covered the role of the Auditor’s Office in the matter.
In a written response Monday afternoon to The Nerve, the Treasurer’s Office said Loftis is “absolutely not” resigning.
“The Treasurer has reaffirmed his commitment to serve the remainder of his term to which he was duly elected by the citizens of South Carolina,” according to the statement.
But Loftis, whose annual salary is $164,000, according to the state salary database, has not provided direct answers to The Nerve’s key questions on the AlixPartners report findings.
The disputed $1.8 billion was the subject of a critical 116-page interim report released last April following an investigation by the Senate Finance subcommittee. The report accused Loftis of failing to disclose the funds for seven years “despite his explicit statutory duty to do so.”
Loftis denied any wrongdoing and published a lengthy defense on the agency’s website, contending the money was “not missing or recently discovered,” and that his office has been “fully transparent about the matter.”
The $1.8 billion – actually more than $1.85 billion though “commonly referred to as the ‘$1.8 Billion,’” according to the AlixPartners report – was part of a $3.5 billion accounting error that was the subject of a 2022 investigation by the Senate Finance subcommittee and led to the April 2023 resignation of then-Comptroller General Richard Eckstrom, a Republican who had served 20 years in his elected position.
Grooms is a co-sponsor of a joint resolution filed in December calling for an amendment to the S.C. Constitution, which would have to be approved by voters statewide, to remove the office of the comptroller general as an elected state constitutional officer. The legislation, sponsored by Sen. Chip Campsen, R-Charleston, was assigned to a Senate Judiciary subcommittee chaired by Campsen.
A separate joint resolution filed last week, which is sponsored by Senate Finance Committee Chairman Harvey Peeler, R-Cherokee, and co-sponsored by Grooms and two other senators, would authorize the Department of Administration to hire an “independent compliance consultant” to “assess and oversee compliance with all recommendations” in the AlixPartners report and “other relevant studies” conducted in fiscal years 2023-24 and 2024-25. The legislation was referred to the Finance Committee.
In addition, a day after the AlixPartners report was released, state Rep. Heather Bauer, D-Richland, introduced a resolution calling for the House Judiciary Committee to “undertake an immediate inquiry” into whether Loftis should be impeached by the House, as allowed under the state Constitution, for “serious misconduct in office including, but not limited to, dereliction of duty and breach of the public trust.”
The Nerve repeatedly pointed out that the $1.8 billion – if it actually existed – represented more than $300 for every man, woman and child in the state. The South Carolina Policy Council – the parent organization of The Nerve – recommended last April rebating the full amount, assuming it existed, to taxpayers if no state agencies claimed the money by last June 30 or couldn’t provide evidence by then of their share of the funds.
No agencies made any claims to the money, according to written responses provided last year to The Nerve by the Department of Administration.
Unanswered questions
The Nerve sent written questions last Wednesday to Loftis’ office asking, among other things, whether the treasurer, in light of the AlixPartners report, still believes the $1.8 billion is actual cash, or if he accepts the report’s finding that about $1.6 billion of the amount doesn’t exist.
Loftis didn’t directly answer that question but instead issued the following written response Wednesday to The Nerve, focusing in part on the approximately $225 million in earnings that he had cited at the April 2024 Senate Finance subcommittee hearing.
“At the time of the hearing, we had received professional opinions from the (S.C.) Comptroller General, State Auditor and external audit firm that the $1.8B was General Fund cash. The State Treasurer’s Office pools and invests ALL cash in its custody. We were asked what amount of earnings would have been generated by the $1.8B amount, and my staff pulled that number based on the daily available rate.”
After it was pointed out in writing that Loftis didn’t provide a direct answer to The Nerve’s question about whether he now believes the $1.8 billion actually exists, his office in a follow-up statement Friday evening essentially repeated his initial response.
“He was relying on statements made by the auditor and the comptroller general and CLA (CliftonLarsonAllen, the state’s external auditors),” according to the response. “With that understanding, he testified (at the April 2, 2024, hearing) that it was real money.”
The Nerve on Monday again in writing requested that Loftis provide a direct answer to the question about whether he agrees with the AlixPartners report's finding that the approximately $1.6 billion of the $1.8 billion is not actual cash.
The Treasurer’s Office in a follow-up response on Monday stopped short of answering that question, saying that while “we have no reason to question their findings,” the office is “still reviewing” the report, adding, “In fact, their report confirmed that there are no missing funds, and that cash and investments reconciled back to the bank.”
At last week’s full Senate Finance Committee hearing, Sen. Shane Martin, R-Spartanburg, cited the April 2024 subcommittee hearing during which Loftis was questioned by then-Sen. Fanning about the $1.8 billion, noting that the “treasurer told him (Fanning) that he could provide that money and let him touch it.”
“So, which account is that money in?” Martin asked AlixPartners staff members who worked on the report.
“It’s not; it’s a complicated question,” replied Susan Markel, a managing director at the firm, explaining that of the total $1.8 billion, $245 million “did exist” and “is in cash,” though adding, “We’re not certain of the specific account.” The report noted that its review team had “not determined the origin” of $11 million of the $245 million.
The remaining approximately $1.6 billion “is not cash,” and that it “results from certain accounting entries,” Markel said.
A forensic accountant with more than 30 years of experience, Markel previously worked for 15 years in the enforcement division of the U.S. Securities and Exchange Commission – which has been investigating the $1.8 billion, as The Nerve has reported since last year – and served as the division’s chief accountant from 2003-2009 before joining AlixPartners, according to a biography included with the firm’s proposal for the state contract.
Asked by Grooms during the Jan. 21 hearing whether Loftis could have invested the $1.6 billion – assuming it was “something that’s not real” – and earned a return, David Bligh, an AlixPartners senior forensic accountant, replied, “No.”
The Nerve last June submitted a request to the Treasurer’s Office under the state’s open-records law for bank records related to the $1.8 billion. But the office denied the request, contending that the records were exempt under the law as an “attorney work product of the Governor’s Working Group.”
Gov. Henry McMaster in April last year created a task force made up of representatives from six state agencies, including the governor’s and treasurer’s offices, to investigate the $1.8 billion and gave the panel a July 1 deadline – which it missed – to find answers. The Nerve repeatedly pointed out last year that the task force met secretly over several months.
In a prepared statement following the release of the AlixPartners report, McMaster, a Republican, said the report “confirms that there were unintended accounting mistakes made by different parties involved in the state government’s transition from an old accounting system to the new accounting system.”
The report noted that the treasurer’s and comptroller general’s offices were “both aware of the (what we now know to be an incorrect) decision to exclude” a specially created fund that listed the $1.8 billion from the state’s Annual Comprehensive Financial Report for fiscal year 2016 and “the years thereafter.”
The report said the special fund was created during the conversion of the state’s former accounting system, known as “STARS,” to the current “SCEIS” system, a process that started in 2007 and occurred in “multiple” phases over the years, with cash held in the state treasury and investments representing “some of the last elements to convert” in 2017.
The report made 25 recommendations, including that the state hire an “independent third party” to “assess and oversee compliance with all recommendations in this report.”
The state Department of Administration in July last awarded AlixPartners, which according to its website has 26 offices worldwide, a “potential” $3 million contract. The Nerve in September revealed that the firm was not the low bidder for the contract, though under state law, state procurement officials don’t have to accept the lowest bid but instead can use other purchasing procedures depending on the situation.
In addition, lawmakers included a special provision in this fiscal year’s state budget which, among things, exempted the department in awarding the contract from using purchasing procedures under the law.
Under the award with the firm’s Washington, D.C., office, the state agreed to an amended total estimated fee of $2.79 million. As of Jan. 16, AlixPartners had charged a total of $2.68 million to the state, according to records provided to The Nerve by the Department of Administration under the S.C. Freedom of Information Act.
Multimillion-dollar legal bills
In its story earlier this month, The Nerve revealed that the state attorney general's and comptroller general's offices collectively had paid more than $2.8 million to three outside law firms in connection with the Securities and Exchange Commission (SEC) investigation – $743,000 over what was initially budgeted. Total payments as of this week were at least $3.1 million, records show.
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. State and SEC officials have repeatedly declined to discuss any specifics of the investigation with The Nerve.
In a related matter, on Jan. 15 – the same day the last Nerve story was published – the Attorney General’s Office submitted a revised state budget request for fiscal 2025-26, which starts July 1, seeking an additional $4 million to pay an outside law firm to represent the state in a “complex securities matter.”
“Outside counsel for the State will be regularly interacting with and coordinating the efforts of the various state agencies in this complex matter,” according to the request. “These interactions will include an extensive investigation, large requests for documents, review and analysis of documents produced, and interviews of staff in various state agencies.”
In a written response Monday, Robert Kittle, spokesman for Republican Attorney General Alan Wilson, confirmed that the $4 million request “relates to the retention” of the Atlanta-based King & Spalding law firm, which The Nerve revealed last year was hired by Wilson in January 2024 to represent the state in the SEC investigation.
The Nerve in its story earlier this month reported, based on records provided by the Attorney General’s Office under the Freedom of Information Act, that the office paid the firm of a total of $2.46 million billed from February through October last year – $665,121, or about 37%, more than the $1.8 million that lawmakers had appropriated for legal fees.
On its website, the firm says it has more than 1,300 lawyers in 24 offices worldwide.
The request by the Attorney General’ Office (AGO) for the additional $4 million in legal fees for King & Spalding was not reflected in the McMaster’s proposed state budget for fiscal 2025-26, which he released publicly two days before the AGO submitted its revised request.
Asked about the timing of submitting the revised request, Kittle in his written response Monday said the request was “in coordination with the agency’s hearing with the House Ways and Means Committee” on Jan. 15.
“The agency had multiple amendments to its original overall budget request,” Kittle said, noting, “This is standard as new items arise, and conditions or circumstances change which may require amendments.”
“The timing of this revision in no way was related to the Governor’s budget release date or his omission of a line item for legal fees,” he added.
House and Senate members will consider the governor’s spending proposals in crafting their own state budget versions for next fiscal year. The current budget, which includes state, federal and “other” funds, totals $42.2 billion.
Representatives of the treasurer’s, comptroller general’s and auditor’s offices were scheduled to make presentations today for their respective agencies to a House Ways and Means subcommittee.
Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394-8273 or
