SC made billion-dollar accounting errors. Here’s how much it’s costing in attorney fees
South Carolina’s accounting errors, which has led to a Securities and Exchange Commission investigation, has led to millions in attorneys fees, documents obtained by The State indicate.
Since 2023, when the Comptroller General’s office disclosed it had inflated state cash balances by $3.5 billion, the attorney general’s office has approved more than $4.4 million in outside attorney fees for three state agencies in charge of keeping track of the state’s financial position. The attorney general himself also asked for millions of dollars to hire its own outside counsel to assist investigations resulting from the state’s accounting issues.
Last year, lawmakers investigated a mysterious $1.8 billion listing in the state’s financial records. A $3 million investigation determined most of the money never existed.
Now the state is in the midst of an SEC investigation for the accounting issues and officials have worried the issues will lead to a downgrading in the state’s credit rating and lead to higher borrowing costs.
Since the accounting errors were discovered, the comptroller general, state auditor and treasurer’s office all have requested outside lawyers to represent them amid the SEC investigation, which requires approval of fees by the Attorney General’s Office.
▪ Comptroller-General’s Office: $2 million for Robbins, Alloy, Belinfante, Littlefield LLC in Atlanta,
▪ State Auditor’s Office: $1.2 million for Milibank LLP in New York, and
▪ Treasurer’s Office: $1.2 million for BakerHostetler in Washington, D.C.
The attorney general’s office said the attorney fees are paid out of each agencies’ own budgets.
The attorney general’s office, also is working with King & Spalding in Atlanta to defend the state in the SEC case. Attorney General Alan Wilson asked budget writers on Jan. 15 for $4 million to pay for his own office’s outside counsel, which will include interviews of staff at other agencies and large amount of document requests and analysis, budget documents say.
“The stakes are high, and obviously we have a securities enforcement section within the office, but the amount of information and the amount of technical and complexity aspects of this case require that we work with outside counsel to represent the state’s interest in the securities matter,” Wilson told a House budget panel in January.
Attorneys brought in by all four agencies specialize in SEC investigations as well, documents say.
Most of the attention on the inaccurate $1.8 billion accounting entry made years ago has fallen on Treasurer Curtis Loftis, who has ignored calls for him to resign from lawmakers and has fiercely defended himself in front of legislative panels that oversee his office’s budget.
In its initial 2023 request, the treasurer’s office, which does have its staff attorneys for other purposes, said the firm BakerHostetler’s lead attorney, Jonathan Barr, has significant experience in SEC and Department of Justice securities investigations and prosecutions.
“Mr. Barr’s prior experience and expertise allows him to identify the steps that need to be taken in order to effectively respond to the SEC investigation and to assist us in navigating the investigative process to obtain an appropriate result,” the treasurer’s office wrote in its request to the Attorney General’s office.
In February, Shelly Kelly, the general counsel of the treasurer’s office, put in another request to hire BakerHostetler to “represent Treasurer Loftis for actions taken in the course of his employment in an investigation by the US SEC regarding the state’s (annual comprehensive financial report).”
The next day the attorney general’s office approved the request, but with a caveat.
“The approval ... does not extend to any other matters, including impeachment proceedings or any legislative hearing other than those related to the SEC investigation,” Deputy Attorney General T. Stephen Lynch wrote in an email obtained by The State.
The auditor’s office asked for an outside attorney because it doesn’t have any lawyers within the office.
The comptroller general’s office said the attorneys would be used to represent both current and former employees of the agency that serves as the state’s top accountant.
The accounting errors already has led to resignations.
Former Comptroller General Richard Eckstrom resigned in 2023 after he disclosed his office had inflated the state’s cash balances by $3.5 billion over the course of 10 years.
State Auditor George Kennedy resigned earlier this year after outside forensic auditors AlixPartners determined most of the $1.8 billion didn’t exist, and said the comptroller general, auditor and treasurer’s office were aware of the accounting issue for years but didn’t take any action to correct it or notify the General Assembly.
Comptroller General’s office says it needed the legal counsel for employees and former employees in the SEC’s investigation “for actions in the course of their employment.”
The auditor’s office does not have legal counsel on staff or on retainer to with the appropriate experience to assist in the SEC investigation. The counsel is for both current and former employees of the auditor’s office.
The General Assembly has since made moves to change how the state’s finances are overseen.
Both chambers approved a measure to hire an outside firm to act as a financial compliance officer to oversee the comptroller general, treasurer and state auditor’s office as the state undergoes the SEC investigation.
The cost of that compliance officer is expected to cost up to $4.5 million through June 2028, according to a memo from the Revenue and Fiscal Affairs Office.
The House has passed a bill to make the auditor a position appointed by the governor. It’s under consideration in the Senate.
The Senate also is considering a bill to make the comptroller general an appointed position rather than a statewide elected officer.
