There is smoke. But is there fire? A fight – once thought extinguished – is in full swing over whether Gov. Nikki Haley illegally lobbied while a Lexington County state representative, exploiting her public office for personal financial gain.

A legislative panel must decide soon whether to clear Haley of the allegations, dig deeper into them or punt the matter to the full House of Representatives. Legislators also could seek guidance from S.C. Attorney General Alan Wilson.

The decision will be made against a backdrop of hostility.

Haley and another top-ranking Republican, House Speaker Bobby Harrell of Charleston, late last week traded jabs over whether the ethics process has been hijacked.

The first-term governor contends an out-of-control political system is intent on taking her down.

Haley’s critics say the governor is “crying wolf” to distract attention from a legitimate investigation into whether she sold her public office to the highest private bidders, a Lexington hospital seeking state approval to expand and a Columbia-based engineering firm that worked for the state.

Haley said Friday that she has turned over all documents requested by the House Ethics Committee, including affidavits from the hospital and the engineering firm, and they prove she never lobbied to get state favors.

Earlier this month, that committee appeared to have ended the inquiry. The panel decided the allegations against Haley were sufficient to warrant an investigation. But then the committee, which had been meeting in secret for a month, immediately voted along party lines, 5-1, to clear Republican Haley of the charges.

After Democrats objected that the panel could not vote to investigate and then end the inquiry without any further questioning, the panel reversed course, asking for more information from Haley and those who paid her.

Haley claims Harrell, whom she clashed with bitterly when she was a GOP state representative and he was the leader of the House, unfairly is influencing the panel’s staff, encouraging further, unnecessary digging.

“It was dismissed based on fact. It was brought back up based on politics,” Haley said Friday. “I’m governor now whether people like it or not. Let me do my job.”

Harrell has denied Haley’s charges, saying his only involvement was to encourage the panel, made up of five Republicans and one Democrat elected by the full House, to conduct a full, thorough investigation.

“The governor is ... trying to distract the public from what is a very serious matter,” Harrell said Friday. “These are major criminal violations of the law that Governor Haley has been accused of committing. Given the governor’s claim that there is no validity to these charges, combined with the extreme measures and false accusations now being employed by Governor Haley, one can only wonder: Why? Why to this level?

“What does Governor Haley have to hide?”

The allegations

In the normal course of politics, a Republican governor could expect the support of an overwhelmingly Republican state Legislature.

But, as with her predecessor and mentor, Mark Sanford, relations between Republican Haley and the GOP-controlled Legislature are anything but normal. In her recently published memoir, Haley said legislators toady and grovel before the Legislature’s GOP leaders, adding new Republican members trade their ideals for power. She was particularly critical of Harrell.

Partly as a result, Haley has few fans in the Legislature, where some viewed her an overly ambitious back-bencher who had little time for legislative tradition, like newcomers sitting quietly while they learned the rules.

The ethics allegations also reveal the intra-party GOP rift. They were filed by John Rainey, a longtime S.C. Republican activist and Sanford supporter who Haley says is a has-been racist.

Rainey’s most serious charges allege Haley:

•  She broke state law while a House member by lobbying for Lexington Medical Center, seeking to build an open heart-surgery center, and Wilbur Smith Associates, an engineering firm that does work for the state. Rainey alleges Haley hid that illegal activity by filing false and incomplete disclosure forms with the state.

•  She exploited her public office by seeking donations that would benefit Lexington Medical from State House lobbyists and the companies they represent, which do business with or have interests before the state.

Haley’s attorneys have argued she never lobbied, only advocated for a hospital that was in her district as any good representative would do. And, they say, seeking donations is legal under state law.

They say Haley’s activities are not only allowed but typical of lawmakers.

“Indeed, Governor Haley’s business activities and conduct are commonplace in the Legislature and were always consistent with the law,” Swati Patel, the attorney for the governor’s office, wrote to the Ethics Committee. “To find otherwise would not only impugn the integrity of many other members of the General Assembly, but also that of many of South Carolina’s best corporate partners.”

That statement has infuriated some lawmakers, including House Minority Leader Harry Ott, D-Calhoun. Ott, a farmer, says Haley’s activities are not typical of lawmakers and a more thorough vetting is needed so lawmakers can clear their names.

“You can’t say something like that and go unchallenged,” Ott said. “I want the public to know that is not what we (lawmakers) are up to.”

Rainey has encouraged the committee to seek an opinion from state Attorney General Alan Wilson, R-Lexington, on whether Haley’s activities were legal.

Lexington Medical Center

In a lawsuit filed in November and then in a House Ethics Committee complaint, Rainey accused Haley of illegally lobbying for Lexington Medical Center as it worked to gain approval for a new open-heart surgery center.

Haley and her attorneys say she never worked for the hospital so she could not have lobbied on its behalf.

Instead, they say she worked as a fundraiser for the Lexington Medical Center Foundation, a nonprofit that is a separate entity from the hospital with its own directors and bylaws. Affidavits from officials at the hospital and foundation say Haley only worked for the foundation and never lobbied.

Haley held the job from 2008 to 2010 and was paid $110,000 a year. But her paychecks were issued by the hospital, not the foundation, leading Rainey and others to question who her real employer was.

Haley left the job in the spring of 2010 as she was launching her bid for governor. E-mails from that period show hospital officials had difficulty reaching Haley, who they said was not coming to work, and asked her to take a leave of absence. Haley negotiated a $35,210 settlement to leave the hospital.

To that background, Haley’s attorneys have added a new argument in recent days. They now say even if Haley had worked for the hospital – which they say she did not – it would not be illegal. State law allows lawmakers to work for any organization. But they cannot lobby on their employer’s behalf.

Rainey claims Haley did work for the hospital – as evidenced by human resource and confidentiality documents that Haley signed with the hospital – and she lobbied on its behalf as it tried to win state approval for the open-heart surgery center.

To bolster his argument of illegal lobbying, Rainey submitted to the Ethics Committee an August 2008 email Haley sent to Lexington Medical Center’s chief executive Mike Biediger. In it, Haley wrote: “We have some work to do not only to switch (lawmakers’) votes but to hold the ones we have. We are as close as we are going to get and can’t afford to leave one stone unturned. … Fingers crossed!”

However, House Ethics Commission members ruled this month the email is not proof of lobbying, just an example of Haley advocating for a business in her district – a common practice among lawmakers who work to bring businesses and jobs to their areas.

“We discussed whether it was above and beyond anything any of us would do in that situation to help out our district,” said state Rep. Joan Brady, R-Richland. “We decided it was appropriate.”

The committee also directed Haley to correct her state-filed ethics forms and list the foundation – not the hospital, as she originally had done – as her employee. Haley has done so.

Who is the employer?

But who was Haley’s employer?

A 2010 W-2 Haley submitted to the Ethics Committee shows she was paid by Lexington Medical Center while a paycheck stub lists the hospital’s foundation as her employer.

Rainey argues the foundation is a department within the hospital, not a separate entity, as Haley contends.

To support his claim, Rainey points to emails and letters in which hospital officials are working out the severance deal with Haley.

“These documents indisputably demonstrate that Haley was employed by (the hospital), not the LMC Foundation,” Rainey wrote in a letter submitted to the Ethics Committee Thursday. “Why would (the hospital) enter into a severance agreement with an individual they did not believe was their employee? All of this is important because it demonstrates Haley lied to this committee.”

A hospital official has said all foundation employees are paid by the hospital. Haley’s office has compared the relationship to working for the governor’s office but getting a paycheck from the state of South Carolina, saying it is legal.

Donations from lobbyists

In her job as a fundraiser for the foundation, Haley also solicited contributions from lobbyists and the companies they represent at the State House.

Rainey alleges those solicitations were an example of Haley exploiting her elected office to win economic benefits for her employer. As evidence, he cites several emails in which then-Rep. Haley discussed her efforts to get donations from BlueCross BlueShield, Michelin North America and others for the hospital foundation.

Rainey wrote: “A lobbyist making a contribution, personally or through (the company they represent), in response to Haley’s solicitation could reasonably believe that they would receive favorable treatment from Haley in the future.”

Haley’s attorney argues it is not against the law for a lawmaker to ask lobbyists and the companies they represent to make charitable donations to a nonprofit foundation – even if that foundation employs the lawmaker.

“These funds did not go to Governor Haley. They did not result in her receiving any kind of bonus,” wrote governor’s office attorney Patel. “She never worked on any kind of commission. They only went to help support the foundation and its mission.”

Should witnesses be called?

Haley also has been accused of illegally lobbying for Wilbur Smith Associates, a Midlands engineering firm that has done work for the state, and failing to disclose $42,500 in consulting fees paid her by the company between 2007 and 2009.

Haley has said she worked as a consultant for the company but was not required to disclose the income. The Ethics Committee agreed earlier this month.

Haley’s job was to scout out private-sector and Lexington County work for the firm, not seek state work, Robert Ferrell, a vice president of the successor firm to Wilbur Smith, said in an affidavit filed with the Ethics Committee last week.

While the committee has asked few questions about Wilbur Smith to date, Rainey is encouraging them to do so. His filings with the committee suggests it call 16 witnesses, who he names, adding they could shed light on Haley’s work for Wilbur Smith and Lexington Medical. Among Rainey’s suggested witnesses are House Majority Leader Kenny Bingham, R-Lexington, who heads an engineering firm, and Larry Marchant, a lobbyist who infamously claimed he had a sexual tryst with Haley in 2008.

To date, the committee has had no public discussion on whether to call witnesses.

Reach Smith at (803) 771-8658.