The Berkeley County School District in South Carolina agreed to settle allegations of wrongdoing it made against a financial advisory firm the district
The school board voted Tuesday night to accept $822,966 from Hilltop Securities Inc., which represents the fees received by financial advisors who worked for the former Southwest Securities and advised the school district from January 2012 through November 2014.
Hilltop Securities was the product of a 2015 merger of Southwest Securities and First Southwest Co.
“Resolving this matter now with a disgorgement of fees serves everyone’s interest as we can put this matter behind us,” said Hilltop spokesman Ben Brooks. “The resolution of this case affirms that there is no admission of wrongdoing or liability.”
The settlement is related to an ongoing lawsuit filed by the district that involves what state officials have called one of South Carolina’s largest embezzlement cases, against the district’s former chief financial officer, Brantley Thomas.
Thomas, who stole more than $1 million from the district, is serving 11 years in state prison after pleading guilty to 37 state and federal charges of embezzlement, forgery, misconduct in office, breach of trust and money laundering.
The school board also learned Tuesday night that it will receive $939,654 from a state restitution order, which will come from Thomas’ retirement account. A federal court also ordered $761,828 in restitution to be paid to the district.
Eddie Ingram, the district’s superintendent, thanked staff, the school board and others for taking action to make the district “whole” again.
“I am grateful for our legal counsel’s dogmatic pursuit of the wrongdoers, and finally I am grateful to the South Carolina Attorney General’s Office for their principled pursuit of justice,” Ingram said. “Without each of these efforts, these announced recoveries would not have been possible.”
On March 6, the district filed a 10-count lawsuit in the South Carolina Court of Common Pleas for Berkeley County against its financial advisors, bond attorneys and Thomas alleging fraud, breach of duty, conspiracy, and professional negligence in connection with their representation of the district and through its bond offerings.
Other defendants named in the suit were Compass Municipal Advisors, Burr & Forman LLP, formerly the McNair Law Firm PA, as well as Frannie Heizer, Brian Nurick, and Michael Gallagher.
Nurick and Gallagher, now with Compass, were financial advisors who formerly worked at Southwest Securities. Heizer, the district’s former bond counsel, is a partner at Burr & Forman LLP, which acquired McNair last year.
Brooks, Hilltop’s spokesman, said the firm would not comment on whether it planned to take any action against Nurick and Gallagher.
The district praised Hilltop for meeting with its attorneys and agreeing to a settlement, which was negotiated even before responses are due in the March 6 lawsuit.
In addition to believing that bond proceeds were misspent, the district’s suit cites multiple instances in which it is believed that members of the finance team worked with Thomas to divert district funds.
The district alleges that it was forced to issue $30.8 million in taxable bonds costing more than $1 million in higher interest rates and a loss of a bond premium because bond counsel and the FAs “knew or should have known that a reimbursement resolution or some other mechanism was required under federal tax law to allow the debt to remain tax-exempt.”
According to the suit, Nurick and Gallagher created the South Carolina Association of Governmental Organizations, or SCAGO, as a statewide pool bond conduit issuer to promote financing and investment opportunities for public schools.
The district said it was told by the FAs that SCAGO membership would save on bond issuance costs, but the savings didn’t materialize “because Compass charged more costs to the pooled services than was appropriate for such transactions.”
The FAs, through SCAGO, also “inappropriately charged the district for unnecessary and extravagant junkets, including trips to New York City, by passing the costs of those trips to the taxpayers of Berkeley County and other districts,” the complaint says.
The school district has requested a jury trial and is seeking $50 million and trebled damages, plus punitive damages and legal fees.
