Lawmakers Use Settlement Proceeds for Other Purposes

August 3, 2015

Investigative Reports

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SettlementA nearly $1.4 billion settlement this year over alleged investor fraud involving the national credit-rating agency Standard & Poor’s allowed South Carolina to use its $21.5 million share of the proceeds for consumer protection and education programs.

But S.C. lawmakers didn’t designate that money for any of those purposes in adopting a $24.9 billion state budget for the fiscal year that stated July 1. Instead, they appropriated $27.8 million in the state’s “Litigation Recovery Account” with another $88.5 million in non-recurring funds through a budget proviso (118.14) for such things as:

  • $4 million toward paying off vendor debt at the financially troubled S.C. State University;
  • $3 million to the S.C. Department of Commerce’s “closing” fund – typically used to lure big companies to locate or expand in the state, and which grew by more than 800 percent from when Gov. Nikki Haley took office in 2011 through last fiscal year; and
  • $2 million to the state Department of Agriculture’s “Certified SC” marketing program.

It’s not the first time that lawmakers have grabbed millions from lawsuit settlements involving the state for purposes not related to those suits. For fiscal 2013, for example, the Legislature earmarked $10 million from a national mortgage settlement for Commerce’s closing fund – a move criticized publicly by housing advocates.

Contacted Friday, Mark Powell, spokesman for S.C. Attorney General Alan Wilson, told The Nerve that while the Attorney General’s Office is involved with settlements involving the state, lawmakers decide how the proceeds are spent.

“The Attorney General’s Office sends funds received from fees, fines, recoveries and other cases to the general fund, or as specifically directed,” Powell said in a written response. “The Attorney General’s Office is the state’s Chief Prosecutor, Chief Legal Officer, and Chief Securities officer. It is prohibited by the state constitution from handling the appropriation process. The General Assembly handles that, and does so with a balanced budget each and every year.”

For this fiscal year, legislators had a total of $27.8 million from the “Litigation Recovery Account” to allocate – more than the total ratified budgets of at least 50 state agencies and divisions, including the Attorney General’s Office, a review by The Nerve found.

Powell said five defendant companies were involved in separate settlements last fiscal year totaling $27.8 million: Standard & Poor’s, drug producers GlaxoSmithKline and Novartis, and liquid-crystal display manufacturers Chi Mei and Samsung.

Powell couldn’t immediately provide details of the individual cases, including the settlement amounts. The settlements are not listed on the attorney general’s website.

A review by The Nerve of court documents, media reports and other records found that since last year, South Carolina participated in multi-state settlements in at least three cases.

The Palmetto State, for example, was part of a $177 million, seven-state settlement last year involving GlaxoSmithKline over allegations of deceptive advertising involving the diabetes drug Avandia, according to a press release from the Dallas-based law firm of Baron and Budd, which said it worked with attorneys general in the participating states.

In the Novartis case, South Carolina was among six states that joined federal authorities in a $15 million settlement last year with BioScrip Inc., a provider of prescription drugs to Medicaid patients nationwide, the Washington State Attorney General’s Office said in a press release. BioScrip allegedly received kickbacks from Novartis Pharmaceuticals Corp. to promote a Novartis drug known as Exjade, which was used to treat chronic iron problems resulting from blood transfusions, according to the release.

Chi Mei and Samsung were among defendants in a group of class-action cases nationwide alleging that consumers who purchased flat-panel, electronic devices with liquid-crystal displays were victims of price fixing, according to media reports, which put the combined total settlement amount at more than $1 billion. The two companies also were named as defendants in a 2012 state lawsuit involving Wilson’s office, court records show.

In the case of Standard & Poor’s Financial Services, the U.S. Department of Justice in a February press release said the national credit-rating agency “played a central role that devastated our economy by giving AAA ratings to mortgage-backed securities that turned out to be little better than junk.”

The total settlement between the agency, its parent company, McGraw Hill Financial Inc., and the federal government, 19 states – including South Carolina – and the District of Columbia, was $1.375 billion, half of which was a penalty to be paid to the federal government and the remainder to be divided among the participating states and the District of Columbia, records show.

Under the settlement agreement reviewed by The Nerve, the state “may allocate such payment in the South Carolina Attorney General’s sole discretion and in accordance with any and all obligations imposed by law for purposes including, but not limited to, a consumer protection enforcement fund, consumer education fund, consumer litigation fund, local consumer aid fund, or revolving fund … ”

But the agreement doesn’t require the $21.5 million in proceeds to be used for those purposes, leaving S.C. lawmakers free to spend the money as they wish.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org. Follow him on Twitter @thenerve_rick. Follow The Nerve on Facebook and Twitter @thenervesc.