Taxpayer tab now at $8M to investigate disputed $1.8B, related matters

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

The S.C. taxpayer cost of investigations connected to the disputed $1.8 billion totals more than $8 million so far – and could grow by the millions.

The overall amount includes more than $5.3 million in legal fees and costs paid by four state agencies – the offices of the attorney general, comptroller general, auditor and treasurer – to five outside law firms; and nearly $2.7 million paid to a consulting firm hired by the Department of Administration, according to records obtained recently by The Nerve under the S.C. Freedom of Information Act.

Those records revealed more than $1.2 million in previously unknown legal fees and costs collectively paid by the auditor’s and treasurer’s offices.

The $8 million is nearly $3.7 million more than what The Nerve reported in January, which was based on records at the time.

On top of payments already made, the S.C. House, in its proposed state budget for next fiscal year, appropriated $6 million to the Attorney General’s Office for legal fees – “around $5 million” of which would be used to pay additional expected legal fees and costs to a law firm hired to represent the state in an ongoing U.S. Securities and Exchange Commission (SEC) investigation, an office spokesman said last week in a written response to The Nerve.

The approximately $5 million in state surplus funds could be as much as $1 million more – or higher – than what the office requested in its revised budget plan submitted in January.

In addition, the House’s state budget version for the fiscal year that starts July 1 includes $1.8 million in state surplus funds for the Department of Administration to hire an “independent compliance consultant,” as required under a joint resolution quickly passed by the Legislature and signed by Gov. Henry McMaster on March 7  to “assess and oversee compliance with all recommendations” in a report issued in January by the consulting firm hired by department and “other relevant studies.”

What state taxpayers are getting exactly for the millions in legal fees and costs paid since 2023 is unknown. The Nerve in January submitted open-records requests to the attorney general’s, auditor’s, comptroller general’s and treasurer’s offices for all letters and emails between their respective agencies and the SEC regarding the federal agency’s investigation into the disputed $1.8 billion and related issues.

Agency officials either declined to release the correspondence – several citing certain exemptions in the open-records law – or didn’t directly answer whether they had those records.

In a written response in March to The Nerve, Assistant Deputy Attorney General Harley Kirkland said the SEC is conducting a civil investigation – the first such acknowledgement to The Nerve – though she declined discuss specifics of the probe. The SEC has repeatedly declined to comment whether it is conducting an investigation.

To put the $8 million spent so far into some context, it’s bigger than the current total budgets, which include general, “other” and federal funds, of at least a dozen S.C. agencies, including the Comptroller General’s Office, Administrative Law Court, Department of Consumer Affairs, Inspector General’s Office, State Ethics Commission and Legislative Audit Council.

Following is breakdown of the $8 million, according to the latest records provided to The Nerve:

‘Witch hunt’

Since 2022, investigations into the disputed $1.8 billion and related matters prompted the resignations of longtime elected Comptroller General Richard Eckstrom and State Auditor George Kennedy, who was appointed to his position.

Kennedy, whose annual salary was $187,200 as of October, resigned just eight days after the release of a report in January by AlixPartners, a New York-based consulting firm hired last July by the Department of Administration under a “potential” $3 million contract.

Among its conclusions, the report said about $1.6 billion of the $1.8 billion didn’t actually exist – contradicting testimony to the subcommittee last year by longtime state Treasurer Curtis Loftis that the money was real. The Nerve in January reported that Loftis wouldn’t directly answer The Nerve’s questions about the discrepancy between his earlier testimony and the report’s findings.

Separately, in a final report on the $1.8 billion, which was released last Tuesday, a Senate Finance subcommittee recommended that Loftis, a Republican who was first elected in 2010, be removed from office by the Legislature and governor, as allowed, according to the report, under the S.C. Constitution for any “willful neglect of duty, or other reasonable cause.”

The report noted that no elected constitutional officer has been removed since the state’s formation in 1776.

“The level of ineptitude which has imbued this Treasurer’s time in office is not worthy of the citizens our state, and his volatile temperament and angry demeanor degrade those who are to charged to work with him to secure the financial standing of South Carolina,” the report concluded. “In sum: if the treasurer cannot keep track of the treasury, then he should not remain treasurer.”

The Constitutional Subcommittee conducted an investigation in 2022 into a related $3.5 billion accounting error by Eckstrom, which led to his resignation in April 2023 after 20 years in office; and a related inquiry last year into the disputed $1.8 billion, which resulted in a critical 116-page interim report.

The final report said the eight-member subcommittee is “well aware” of the SEC probe, though adding that the “nature of the investigation dictates appropriate discretion.”

Sen. Larry Grooms, R-Berkeley, who is the subcommittee chairman, repeatedly has called on Loftis to resign, which he has refused to do, denying any wrongdoing and publishing two lengthy reports since last year on his agency’s website defending the actions of himself and his office.

Apparently anticipating the release of the subcommittee’s final report, Loftis through a spokeswoman submitted a column to The Nerve and other media titled, “Stop the Witch Hunt – Protect South Carolina’s Financial Future,” in which he wrote:

“Let’s be clear about what’s really happening: Some senators don’t want you – the voters – to elect your State Treasurer. They want to take that power away from you and appoint someone they can control. They see an opportunity to overturn an election, weaken the independence of the Treasurer’s Office and seize control of the state’s financial management.”

Last Tuesday, Loftis, who makes $164,000 annually, 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.”

A day after the AlixPartners report was released on Jan. 15, 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 resolution has remained in committee.

The Nerve repeatedly pointed out that the disputed $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 year 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.

Costs ‘not predictable’

The Attorney General’s Office in January 2024 hired the Atlanta-based King & Spalding law firm to represent the state “in connection with an SEC investigation,” according a retention agreement provided last year to The Nerve under the Freedom of Information Act. The agreement described the investigation as “In the Matter of State of South Carolina, A-04055,” though it didn’t give details of the probe.

Under an  amended retention agreement signed on Jan. 7 this year by Republican Attorney General Alan Wilson and provided in February to The Nerve under the open-records law, hourly billing rates this year for six identified King & Spalding lawyers range from $734 for an associate attorney to $1,517 for a firm partner. In comparison, last year’s hourly rates for the attorneys ranged from $680 to $1,405.

Paralegals, project assistants and discovery attorneys will be paid hourly rates ranging from $200 to $500, according to the agreement.

As with the original contract, under the amended agreement, which is retroactive to Oct. 1, 2024, the Attorney General’s Office noted that it “understands that the cost of handling a matter is not predictable and that Special Counsel has not made a commitment or promise as to the maximum fees and expenses necessary to complete the Matter.”

King & Spalding on its website says it has more than 1,300 attorneys in 24 offices worldwide. Firm partner Carmen Lawrence, who is the highest-paid attorney under the revised agreement, is a former director of the SEC’s Northeast regional office, the agency’s largest region covering 14 states and the District of Columbia, according to the firm’s website.

For this fiscal year, lawmakers appropriated $1.8 million in state surplus funds to the Attorney General’s Office for outside legal fees. Of the nearly $3.2 million in legal fees and costs billed so far by King & Spalding, at least $2.1 million has been paid since the start of this fiscal year on July 1, records show.

Asked how the office is covering the cost overruns this fiscal year, office spokesman Robert Kittle in a written response last week said, “We’re covering the overage from our currently earmarked litigation funding.”

Other big bills

In the latest records provided to The Nerve under the Freedom of Information Act, the Comptroller General’s Office paid the Columbia office of the Wyche law firm and the Atlanta-based Robbins Alloy Belinfante Littlefield law firm a total of $288,217 in fees and costs in January, bringing overall payments to the two firms to $939,533 since August 2023.

In the summer of 2023, current Comptroller General Brian Gaines hired the Wyche law firm, which has offices in Greenville 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 last year to The Nerve, which appeared to have at least one paragraph deleted.

Under a separate May 2024 agreement, Gaines approved hiring the Robbins law firm to represent “certain employees” in his office in the SEC investigation. As with the Wyche contract, no details about the investigation were listed in the copy of the agreement provided to The Nerve, which appeared to have several paragraphs deleted.

Among other practice areas, the Robbins firm, which bills itself as “One of Atlanta’s Leading Litigation and Regulatory Firms,” represents “whistleblowers” in SEC cases, according to its website.

Gaines’ office last year said the maximum total amount designated for legal fees and costs with the two firms was set at $330,000. With the subsequent payments, the firms collectively have received $609,533 over that cap.

In a written response last week, office spokeswoman Kim Corley McLeod said the “current approval amounts have increased since July of last year,” and that all legal expenses are “being paid by current budgetary resources,” though she didn’t provide specifics.

The state auditor’s and treasurer’s offices also have paid hefty legal bills in connection with the SEC investigation, The Nerve learned in March after filing Freedom of Information Act requests with those agencies.

In January 2024, then-State Auditor Kennedy hired the New York-based Milbank law firm in to represent the agency “in connection with an investigation” by the SEC into a “multi-year overstatement of the cash balance in the General Fund of the State of South Carolina and the State’s resulting restatement of its historical financial statements,” according to its retention agreement, though no other specifics were provided about the probe.

Payment records show that the Auditor’s Office paid Milbank a total of $621,406 in legal fees and costs from January 2024 through December. The firm agreed to cap hourly billing rates at $1,400 for “any timekeeper,” noting it was offering a 20% discount off its standard hourly rates, which range from $1,695 to $2,245 for partners, $1,575 to $1,795 for “counsel,” $595 to $1,475 for associates, and $330 to $530 for legal assistants.

Milbank, which has 11 offices in the U.S. and elsewhere globally, including more than 400 lawyers in its New York headquarters, represents clients in “some of the most complex financial transactions and high-stakes litigation matters,” according to its website.

‘Unique matter’

As with the Auditor’s Office, the Treasurer’s Office in March released its retention agreement with an outside law firm hired to represent the agency, as well as related payments records, under the open-records law.

For services rendered from August 2023 through last December, the office paid the Washington-D.C.-based BakerHostetler law firm a total of $594,529 in legal fees and costs, records show. The firm has more than 1,000 attorneys in 18 offices nationwide, according to its website.

In addition, the Senate Finance subcommittee’s final report released last week said Loftis hired a “crisis communications” firm and an additional outside forensic accountant in response to the subcommittee’s investigation and release of the AlixPartners report, noting the Treasurer’s Office has spent $43,958 on the communications firm so far this fiscal year on top of the $233,899 budgeted for the agency’s regular communications staff.

“This additional spending belies the Treasurer’s stated preferred conservative approach to his duties,” the report said.

Under the 2023 retention agreement with BakerHostetler, law firm partner Jonathan Barr agreed to “discount” his hourly rate from $1,515 to $980. Records filed by the Treasurer’s Office with the Attorney General’s Office in February show approved hourly rates ranging from $505 to $980 for eight named BakerHostetler attorneys, including Barr, who, according to those records, previously worked as a senior counsel at the SEC’s Division of Enforcement.

Related records filed with the Attorney General’s Office list a total $1.2 million in maximum-authorized payments to BakerHostetler for fiscal 2024 and this fiscal year. State law generally requires the Attorney General's Office to approve outside lawyers for state agencies, including fees to be paid.

“This is a unique matter,” according to an attachment filed with the records. “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.”

Asked for details about the state bond offerings mentioned in the attachment,” Shelly Kelly, the deputy state treasurer and the agency’s general counsel, said only in a written response last week to The Nerve, “Please contact the Attorney General’s Office for any additional questions that you have regarding the SEC investigation.”

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.

Nerve stories are free to reprint and repost with permission by and credit to The Nerve.