How Nikki Haley’s Lean Years Led Her Into an Ethical Thicket

Nikki Haley had been serving in the South Carolina legislature for less than two years when she applied for a job in late 2006 as an accounting clerk at Wilbur Smith Associates, an engineering and design firm with state contracts.

She needed work. Her parents’ clothing business, where she and her husband, Michael Haley, had both worked, was winding down. Ms. Haley was earning a salary of just $22,000 as a part-time state legislator. And her husband’s own enterprise, involving businesses swapping goods and services, was losing money.

Wilbur Smith executives regarded Ms. Haley as overqualified for the accounting job. But because of her wide-ranging network, they would later say, they put Ms. Haley on a retainer, asking her to scout out potential new business. She never found any, a top executive later said. Over the next two years, the firm paid her $48,000 for a job the executive described as “a passive position.”

That contract, and a subsequent, much more lucrative one as a fund-raiser for a prominent hospital in her home county, allowed Ms. Haley to triple her income in just three years. But they also led her into an ethical gray area that tarnished her first term as South Carolina’s governor.

Ms. Haley did not disclose her Wilbur Smith contract until 2010, keeping it secret for more than three years. She also pushed for the hospital’s top priority — a new heart-surgery center — at the same time she was on its payroll. And Ms. Haley raised money for the hospital’s charitable foundation from lobbyists and businesses who may have had reason to curry favor with her.

The donations, one lobbyist wrote, were a way of “sucking up” to a rising political player.

The blurry line between Ms. Haley’s personal and public interests became the subject of a State House ethics investigation in 2012. The Republican-led committee concluded that Ms. Haley, by then the governor, had not violated any state ethics rules. But ethics experts and even some of her past supporters say the outcome was more an indictment of the lax rules and cozy ties between lawmakers and special interests than a vindication of her actions.

“Was Nikki Haley acting unethically? Maybe,” said Scott English, who was chief of staff to former Gov. Mark Sanford, a Republican and Ms. Haley’s predecessor. “Was she acting unethically according to the jungle rules of South Carolina politics at the time? Not at all.”

Ms. Haley’s early ethics controversy is a far cry from the legal morass entangling her top rival for the Republican nomination, former President Donald J. Trump, who faces 91 criminal charges, including obstruction of justice and conspiracy to defraud the United States. Mr. Trump is also facing civil penalties for a yearslong fraud scheme involving his real estate business.

Yet Ms. Haley’s actions broke ethical norms, according to Kedric Payne, who directs the ethics program for the Campaign Legal Center, a nonpartisan watchdog group. In most states, at least some of her conduct would have been out of bounds, he said, because it created the appearance of a conflict of interest.

A core principle of most state ethics laws is that “you cannot have outside employment that could in any way conflict with your official duties,” Mr. Payne said.

In South Carolina, the ethics investigation of Ms. Haley undermined her image as a broom-sweeping crusader working to shake up the political establishment — a persona she is still cultivating. Campaigning in New Hampshire on Saturday, Ms. Haley dismissed her lack of endorsements from politicians in her home state and in Washington as a result of her stances on transparency and ethics.

“I’ve called elected officials out because accountability matters,” she said.

The questions about Ms. Haley’s potential conflicts revealed how her work in politics had produced financial dividends almost from the beginning of her career in public life.

In recent years, Ms. Haley has made millions from consulting fees, paid speeches, stock and seats on corporate boards. In the year leading up to her presidential bid, she made around $2.5 million in income on speaking engagements alone, according to her financial disclosures.

This account of Ms. Haley’s early ethics troubles is drawn from testimony, filings and exhibits released by the South Carolina House in response to a public information request from The New York Times, as well as other documents, interviews and media accounts.

Ms. Haley’s presidential campaign did not respond to questions about the controversy. She said at the time that she had followed the existing rules and cast the episode as an attempt by her political enemies to keep her from fighting South Carolina’s pay-to-play culture.

“I don’t think I did anything wrong,” she told the ethics committee in 2012.

Yet when she campaigned for a second term as governor, Ms. Haley worked to rehabilitate her image and ran on a promise to reform the state’s ethics rules. Once re-elected, she signed a law that outlawed secret sources of income like her Wilbur Smith contract.

The lean years

In 2010, prodded by her opponent in her first run for governor, Ms. Haley disclosed six years of her joint tax returns with her husband, Michael Haley. They showed a stretch of modest earnings, thousands of dollars in penalties and interest for late tax payments, and close to $21,000 in business losses from Mr. Haley’s brief business venture, according to published accounts and summaries of the tax returns given to House ethics committee investigators.

(Although Ms. Haley has repeatedly said that candidates for president should release their tax returns, she has not released her own, nor have her opponents in the Republican primary race.)

As young adults, both Ms. Haley and her husband had worked for her parents’ clothing business, Exotica International, she as the firm’s chief financial officer, he in charge of men’s wear. But the Haleys’ income from the store petered out in 2006, two years before it closed. The couple, who then were both in their mid-30s, had two children. Ms. Haley’s legislative job was only a part-time position. Mr. Haley joined the South Carolina National Guard that fall, but initially earned little.

The Wilbur Smith contract helped fill in the financial gaps. The tax documents suggest that the engineering firm’s retainer amounted to nearly half of her family’s income of $64,000 in 2007.

A top executive at the firm testified that he could recall only one or two meetings with Ms. Haley and that they never discussed state contracts. Ms. Haley said a House lawyer had advised her that she was not required to report the payments. She recused herself from a vote on one of the firm’s projects out of an abundance of caution, but voted on a second bill that canceled the project. She testified she didn’t see a conflict in that vote.

Wilbur Smith ended her retainer in late 2008.

Wearing two hats

By then, Ms. Haley was onto something new. That summer, she asked Michael J. Biediger, then the chief executive of Lexington Medical Center, to hire her.

Ms. Haley said her parents were either losing or selling their business, Mr. Biediger testified. Her job application listed her salary at Exotica as $125,000 and requested the same amount. But her tax returns indicated she never earned more than $47,000 a year from the clothing firm.

Ms. Haley did not fill out or sign the application, a top aide told reporters, although the application stated that her typed name constituted a signature.

Mr. Biediger created a $110,000-a-year position for Ms. Haley as a fund-raiser for the hospital’s foundation, a subsidiary of the hospital. At the time, she was a member of the powerful House Labor, Commerce and Industry committee and was also majority whip.

He told the ethics committee he had hired her for her networking skills and personality and relied on a consulting firm’s recommendation to set her salary. A survey by the state’s Association of Nonprofit Organizations found that her salary was two and a half times as high as the average for similar organizations.

The job came with inherent ethical dilemmas. Legislators were prohibited from serving as lobbyists, but now Ms. Haley was wearing two hats: as a lawmaker trying to help the hospital win state approval to open the heart-surgery center, and as a paid employee of a hospital subsidiary.

Ms. Haley continued to work with other lawmakers on a plan to build support for the heart-surgery center, according to emails. She also spoke with an official on the state board with decision-making authority over the center, and communicated with hospital officials about the proposed project.

Asked about her dual roles, Ms. Haley, who disclosed her hospital work on her financial disclosures, told the ethics committee she had kept her jobs separate.

“I never had a legislative conversation in any way mixed with a foundation conversation,” she said.

Ms. Haley also brushed off concerns that her fund-raising job opened up a potential avenue for special interests that might want to influence her. She solicited donations from various corporate interests, including an association of financial services firms and Blue Cross Blue Shield of South Carolina.

To contact Blue Cross executives, Ms. Haley first reached out to a prominent lobbyist, Larry Marchant, she testified. Mr. Marchant told her that if the company contributed, “You are going to owe me,” she said, and she replied, “You know I don’t work like that.”

The health insurer’s donations grew from $1,000 in 2007, the year before Ms. Haley joined the foundation, to $20,000 in 2010.

In January of that year, as Ms. Haley was running for governor, Mr. Marchant advised the firm not to lower its donation, writing to one company official: “I’m still sucking up to Nikki in the event she comes on strong in the primary.”

Blue Cross officials told the ethics committee they had conducted an internal investigation and determined that the donations were not an attempt to influence Ms. Haley, but a typical effort to build good will with the community.

‘The people deserved to know’

Ms. Haley and Lexington Medical cut ties during her campaign. As governor, she attacked the House ethics inquiry as a distraction engineered by Democrats. A surprise witness in her own defense, Ms. Haley accused the influential Republican lawyer who had filed the initial ethics complaint, John Rainey, of being a “racist, sexist bigot” and of suggesting that her family was related to terrorists. Mr. Rainey later said that Ms. Haley, whose parents are Indian immigrants, had misconstrued the remark.

The Republican-led committee dismissed each of the charges with little explanation. Democrats argued that the lawmakers never fully investigated the allegations because they were loath to go up against a sitting governor.

In South Carolina, the episode was soon overshadowed by a barrage of other corruption scandals. John Crangle, the former head of South Carolina’s chapter of Common Cause, said that Ms. Haley’s conduct didn’t “smell good,” but that it paled in comparison to the convictions of half a dozen legislators, including the Speaker of the House, of crimes involving misuse of campaign funds and payments from lobbyists.

The Center for Public Integrity, in a state-by-state survey of ethics rules, gave South Carolina an F rating in 2012, saying the state’s loopholes were “large enough to dock a Confederate submarine.”

Soon after the ethics investigation, Ms. Haley went on a whistle-stop tour of the state promoting an ethics overhaul. In 2016, she signed two bills that required lawmakers to disclose the sources, but not the amounts, of private income, and revamped the process for reviewing allegations.

Mr. Crangle said the changes did not go far enough.

“Special interests want to invest large amounts of money to buy legislation and legislators, and Nikki never really challenged that institutional system of corruption,” he said.

In her own retelling of her political rise, Ms. Haley made no mention of her ethics issues. In a 2012 memoir, she wrote that she believed that letting lawmakers hide the sources of their income — as she herself had done — was wrong.

“It breeds conflicts of interest,” she wrote. “The people deserved to know who paid us.”

Kitty Bennett and Susan Beachy contributed research. Jazmine Ulloa and Rebecca Davis O’Brien contributed reporting.