State agencies reveal hiring outside lawyers after initial denials

UPDATE: 4/21/25 - After hours of debate, the S.C. Senate voted 33-8 to remove state Treasurer Curtis Loftis from office for “willful neglect of duty” under a provision of the S.C. Constitution that requires a two-thirds vote of both chambers. The removal resolution will go to the S.C. House for its consideration. The Senate hearing was held after the S.C. Supreme Court on 4/17/25 denied Loftis' request to stop the proceeding.

UPDATE: 4/11/25 - State Treasurer Curtis Loftis filed a petition yesterday with the S.C. Supreme Court aimed at preventing the full S.C. Senate from holding a scheduled hearing on 4/21/25 to determine whether he should be removed from office. Loftis in his legal brief contends, among other things, that the state Constitution doesn't allow the type of removal procedure sought by the Senate for a statewide elected official. Loftis has requested that the justices make a quick ruling given the timing of the scheduled Senate hearing.

Editor’s note: This story is part of a two-story package today. The other story can be found here.

By RICK BRUNDRETT

Last July, The Nerve asked state Treasurer Curtis Loftis and then-State Auditor George Kennedy under the state’s open-records law if their respective agencies had hired any outside lawyers in connection with a special governor’s task force investigating the mystery $1.8 billion.

In written responses, Kennedy and the Treasurer’s Office chief lawyer each said no outside attorneys had been hired in the matter.

But by then, both agencies already had hired high-powered, outside law firms in connection with a related investigation by the U.S. Securities and Exchange Commission (SEC), records obtained in March under the S.C. Freedom of Information Act show.

And, as The Nerve revealed in a companion story today, the two agencies collectively have paid a total of $1,215,936.59 to the law firms: $621,406.82 paid by the Auditor’s Office to New York-based Milbank and $594,529.77 paid by the Treasurer’s Office to Washington, D.C.-based BakerHostetler.

In total, S.C. taxpayers so far have paid more than $8 million – and potentially will shell out millions more – for investigations connected to the disputed $1.8 billion.

Coinciding with last April’s release of a critical, 116-page interim report by a state Senate Finance subcommittee that investigated the $1.8 billion, Republican Gov. Henry McMaster created a special task force to conduct its own probe of the mystery money and gave the panel a deadline of last July 1 to find answers.

The task force, made up of representatives from the governor’s, attorney general’s, treasurer’s, auditor’s and comptroller general’s offices, as well as the state Department of Administration, routinely met secretly over the next several months, as The Nerve pointed out.

The July 1 deadline passed without any answers offered publicly by the task force. By the middle of July, the department had hired the New York-based global consulting firm, AlixPartners, to conduct a forensic accounting investigation – at a “potential” $3 million cost to S.C. taxpayers. The department bypassed lower bidders, though it wasn’t required by law to accept the lowest bid, as The Nerve revealed then.

On Jan. 15 this year, AlixPartners released a 65-page report that determined, among other things, that approximately $1.6 billion of the $1.8 billion didn’t actually exist. Eight days later, Kennedy, who was appointed in 2015 by the State Fiscal Accountability Authority, resigned his position; his annual salary as of October was $187,200, according to the state salary database.

Sen. Larry Grooms, R-Berkeley, who chaired the Senate Finance subcommittee’s investigation, has repeatedly called for Loftis’ resignation. Last Tuesday, his committee released a 49-page final report, along with more than 600 pages of attachments, which, among other recommendations, called for the removal of Loftis from office under the S.C. Constitution.

A Republican who was first elected in 2010, Loftis has refused to resign and has denied any wrongdoing, though he dodged answering key questions from The Nerve in January regarding the $1.8 billion. Since last year, Loftis has published two lengthy reports on his agency’s website defending the actions of himself and his office.

Last Tuesday, Loftis, whose annual salary is $164,000, published a statement on his website rejecting the subcommittee’s call for his removal and recommended that the state Inspector General’s Office review his agency’s “books and operations.”

‘Serious matter’

The Nerve learned about the identifies of and payments to outside lawyers hired by the treasurer’s and auditor’s offices in connection with the ongoing U.S. Securities and Exchange Commission’s investigation following unsuccessful attempts in January to obtain all written communications between those agencies and the SEC.

Although it didn’t release its correspondence, the Treasurer’s Office in February provided The Nerve with a disclosure notice it had filed in 2023 for a municipal securities website, which the SEC has designated as an official information source, dealing with a $3.5 billion “restatement,” or acknowledged accounting error, by then-Comptroller General Richard Eckstrom, who revealed the lower state general-fund balance in a fiscal year 2022 financial report.

“The State has been advised by the United States Securities and Exchange Commission (the “SEC”) that it is the subject of a formal order of investigation by the SEC, relating to the subject matter of the Restatement, to determine whether securities laws were violated,” the notice read. “The State intends to cooperate with the investigation.”

The Treasurer’s Office said the Nov. 22, 2023, voluntary filing was disclosed on the Electronic Municipal Market Access (EMMA) website operated by the Municipal Securities Rulemaking Board (MSRB), which is overseen by the SEC. The website says it was established to “increase the transparency of the municipal securities market by providing free public access to municipal securities disclosures and data.”

The Nerve in March asked the SEC to comment on the filed disclosure notice, though a spokesperson repeated the agency’s earlier written responses that it “does not comment on the existence or nonexistence of a possible investigation.”

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. The state Attorney General’s Office in March told The Nerve that the SEC is conducting a civil investigation.

Asked why the Treasurer’s Office filed the disclosure notice, Shelly Kelly, the deputy state treasurer and the agency’s general counsel, said in a written response last week to The Nerve: “One of the ministerial acts delegated to the STO (State Treasurer’s Office) by the SFAA (State Fiscal Accountability Authority) is that of filing the disclosures on EMMA on behalf of the State. As part of that duty, STO staff upload the EMMA filings related to the State’s debt.”

The August 29, 2023, retention agreement with BakerHostetler, which the Treasurer’s Office provided in March to The Nerve under the open-records law, said the firm would represent the office “with regard to an investigation being conducted by the Securities and Exchange Commission’s Division of Enforcement” concerning the “State’s Annual Comprehensive Financial Reports and any other disclosures filed by the State with the MSRB on the (EMMA) system.”

“It is a serious matter when the State of South Carolina and various state agencies are being requested to provide information to the SEC in connection with an SEC investigation of the State’s Annual Comprehensive Financial Report and State bond offerings in which the conduct of the State and State agencies will be subject to investigation,” the Treasurer’s Office said in other related documents filed with the Attorney General’s Office since August 2023.

Kelly declined last week to elaborate on that statement, referring The Nerve’s questions to the Attorney General’s Office, which repeatedly has declined to discuss specifics of the SEC investigation.

In a written response in February, Kelly said the Treasurer’s Office was “unaware of an SEC investigation specifically involving ‘$1.8 billion,’” though The Nerve pointed out the AlixPartners report found that the amount was part of the $3.5 billion accounting error revealed in the comptroller general’s fiscal 2022 Annual Comprehensive Financial Report.

The AlixPartners 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.

In its retention agreement with the State Auditor’s Office, which was dated Jan. 11, 2024, and released last week to The Nerve, the Milbank law firm said it would represent the office “in connection with an investigation by the U.S. Securities and Exchange Commission into a multi-year overstatement of the cash balance in the General Fund of the State of South Carolina and the State’s restatement of its historical financial statements.”

No other details about the SEC investigation were provided in the agreement. In a written response last week, Cindy Hoogenboom, director of administration for the Auditor’s Office, said there are “no amendments at this time” to the agreement though adding she felt “certain there will be when a (permanent) State Auditor is appointed.”

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-394-8273 or [email protected]. Follow The Nerve on Facebook, Instagram and X (formerlyTwitter) @thenervesc.

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