The owner of a small law firm in South Carolina could be ordered to pay nearly $3 million for her role in orchestrating a nationwide financial scheme suspected of cheating veterans and retirees out of millions of dollars.
An administrative judge in Arizona recommended last week that Candy Kern-Fuller and her Upstate Law Group pay up to $2.5 million in restitution to more than 20 investors in that state who lost their life savings as a result of the alleged scheme.
The judge also recommended Kern-Fuller and her firm, which is based in Easley, pay a combined $480,000 in fines over claims that they broke Arizona's investment laws.
The ruling, which still needs to be approved by the Arizona Corporation Commission, caps off a lengthy case against Kern-Fuller and several of her business associates who have been reprimanded by financial regulators repeatedly over the past decade.
The Post and Courier published an investigation about the Upstate Law Group last year as evidence began to emerge about the firm's involvement in the alleged fraud.
This is how the scheme worked, according to various court records: Several companies convinced cash-strapped military veterans to sign over the rights to their pension or disability payments for several years. The businesses then recruited retirees to invest in those federal benefit payments.
Part of the investors' money provided a one-time, lump sum payout for the veterans. In return, the investors expected to earn back their cash, with interest, by receiving the veterans' monthly pension or disability payments over a set period of time.
Kern-Fuller and her business partners took their cut on the front end, collecting thousands of dollars in fees from each deal, according to evidence presented in the Arizona case.
State and federal officials, however, allege the entire setup is illegal. Federal law, they argued, prohibits veterans from "assigning" their pension or disability payments to another person.
The veterans are not being accused of breaking the law, but the Upstate Law Group, Kern-Fuller and the people she did business with are.
Records in the Arizona case show Kern-Fuller began participating as early as 2011. From there, she and her employees at the firm quickly became immersed in the process of orchestrating contracts between hundreds of veterans and investors.
The Upstate Law Group effectively served as the banker, legal counsel and debt collector for the entire operation.
The Upstate Law Group ensured each contract between the veterans and investors was filled out correctly. Kern-Fuller used the law firm's trust account to manage the millions of dollars that changed hands. And if a veteran stopped forwarding their monthly benefit payments, Kern-Fuller sued them in Greenville County Court seeking hefty damages for backing out.
In Arizona, Kern-Fuller's attorneys argued the contracts between the veterans and investors were not regulated investments under state law and that she did nothing wrong as a result.
But the administrative judge ruled against Kern-Fuller and her business associates. He found that the contracts did violate Arizona's securities laws, and he said Kern-Fuller "made, participated in or induced" what he determined were illegal investments.
Kern-Fuller, as well as her attorneys in Arizona and South Carolina, did not return phone calls and emails seeking comment.
It's not the first time Kern-Fuller declined to speak about her involvement in the alleged scheme.
She previously sued federal officials with the Consumer Financial Protection Bureau to prevent them from questioning her last year. And during the hearing in Arizona, Kern-Fuller took the witness stand but declined to testify under the advice of her lawyers.
The attorney for Arizona's Securities Division asked Kern-Fuller more than 100 questions, but she did not respond to any of them.
The investors who lost money in Arizona, however, did speak. They told the judge that the involvement of Kern-Fuller, a licensed attorney in South Carolina, provided an air of legitimacy to the scheme. It suggested that the contracts were legal, they said.
Several of the Arizona investors said they lost their life savings when veterans began to back out of the allegedly illegal contracts that Kern-Fuller helped to put together. And some of them said they were forced to leave retirement in order to replace the money they lost.
The pending order in Arizona could potentially make those investors whole, but there are many other victims still out there. The Post and Courier confirmed that the scheme targeted hundreds of veterans and investors throughout the country over a period of more than seven years.
There are at least two other federal lawsuits filed against Kern-Fuller and the Upstate Law Group, in Pennsylvania and Tennessee.
There are also many other investors who are trying to figure out how they might get their money back.
Robert Mallory, who lives in Texas, is one of those investors. Mallory and his wife invested roughly $48,000 in one of the contracts the Upstate Law Group helped orchestrate, he said, but he only got back roughly $28,000 before the veteran he contracted with stopped forwarding the money.
He's better off than a lot of the other retirees who invested hundreds of thousand dollars. But he still wants people to be held accountable.
Mallory doesn't understand why Kern-Fuller and her associates have yet to be ordered to pay back everyone's money.
"It's baloney. It's just not right," Mallory said. "They were in the very middle of all of this."
Kern-Fuller has yet to face any financial penalties in South Carolina, even though court records show the scheme also netted unwitting investors in this state.
That could change. The S.C. Department of Consumer Affairs and the Consumer Financial Protection Bureau already have a civil lawsuit filed against Kern-Fuller and the Upstate Law Group in federal court.
And the South Carolina Attorney General's office, which is in charge of policing the state's securities laws, hinted this week that it might pursue a case against Kern-Fuller, too.
The Post and Courier asked the Attorney General's Office whether it was looking into the investments that were made in South Carolina. In response, a spokesman for the Attorney General said he could "not officially comment on an ongoing investigation."
For now, Kern-Fuller continues to operate her small law practice out of Pickens County.
Her law partner left the firm last year, according to her website. But she continues to operate as a licensed attorney and is reportedly in "good standing" with the South Carolina court system.