The refusal of a state department director to explain what’s changed after a recent vehicle titling scandal sparked a rare subpoena request from a legislative committee on Monday.

Department of Revenue Secretary Michael Houdyshell appeared before the Legislature’s Government Operations and Audit Committee in Pierre to discuss a new software system and other internal control measures he said will prevent further vehicle titling troubles. Two former Revenue Department employees are criminally charged in a fake vehicle-titling scheme, following an investigation into similar allegations against a deceased former employee.

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But Houdyshell refused, even during an hourlong, closed-door executive session, to offer details on the new internal controls. Houdyshell cited the criminal prosecutions and the possibility of future lawsuits, and said rules direct practicing attorneys to avoid making public statements about a case.

When the committee reconvened publicly, Sen. David Wheeler, R-Huron, told his fellow committee members that he disagrees with Houdyshell’s interpretation of that rule.

Wheeler and Houdyshell are both attorneys. Wheeler argued that rules barring public statements about a case can’t logically apply to statements offered behind closed doors. 

He also said there is no active case involving the deceased former employee, who can’t be prosecuted but whose actions could land the state in a lawsuit.

The senator said it’s a pattern from the executive branch, and one that prevents lawmakers with oversight authority from doing their jobs.

“We need some sort of resolution to this, because this is the answer we always get. It’s occurred in the past when we’ve had controversial matters before this committee,” Wheeler said. “Officials say ‘there’s pending litigation, there’s a threat of litigation,’ therefore there’s no response.” 

The committee voted 7-2 to support subpoenas for Houdyshell and Rosa Yaeger, director of the Revenue Department’s Motor Vehicle Division. A subpoena is a legal order requiring someone to offer testimony or produce evidence.

The subpoenas would need approval from the Legislature’s Executive Board. 

Lawmakers tried and failed in 2023 to pass a bill that would have granted subpoena powers to the audit committee without that additional step. 

The Executive Board is unlikely to be a hurdle in this situation, said its chairman, Watertown Republican Sen. Lee Schoenbeck. He told South Dakota Searchlight he intends to call a meeting for Oct. 29 to discuss the subpoenas.

“I’m going to honor the will of the audit committee,” Schoenbeck said, adding that he’d expect the board’s membership to agree to the subpoenas.

Revenue Department concerns

The Revenue Department’s Motor Vehicle Division has been the focus of legislators since this summer, in light of the behavior of now-deceased former employee Sandra O’Day. O’Day worked for the division for decades. After her death, her family found suspicious financial records that ultimately led the state Division of Criminal Investigation to discover that O’Day had created 13 fake vehicle titles. She’d used them to secure loans, and Attorney General Marty Jackley said earlier this month that the banks victimized by her failure to repay those loans could file lawsuits against the state seeking damages.

Jackley’s latest statements came during a press conference Oct. 9, at which he announced criminal complaints against two other former Revenue Department employees. Lynne Hunsley is facing seven counts for allegedly falsifying a vehicle title, in part to avoid excise taxes, and Danielle Degenstein faces a misdemeanor charge for allegedly notarizing the phony title and for her failure to come clean to law enforcement when confronted.

“I do want to start with a little caveat,” Houdyshell said in the opening seconds of his committee appearance Monday. “Due to pending criminal proceedings and the threat of potential civil litigation, and at the advice of the attorney general, we’re going to be limited as to what questions we can answer today.”

A new system for vehicle and driver licensing in South Dakota should help prevent the kind of criminal behavior uncovered over the summer, he said. The department has also implemented a  mandatory ethics training for employees, and has signaled its plans to hire an internal control officer.

That last move mirrors one from the state Department of Social Services. That agency also came under scrutiny recently for the alleged behavior of one of its former employees. 

Lonna Carroll allegedly embezzled $1.8 million from the state by creating and approving fraudulent financial support orders for children from 2010 through 2023. Carroll’s jury trial is set to begin in December.

After about 10 minutes of public testimony Monday, Houdyshell and the committee members retired to a closed, executive session.

Closed doors, closed mouths

Sen. Wheeler launched into an explanation of his reasons for wanting subpoenas shortly after the committee reconvened for its public meeting.

The audit committee is supposed to get answers to questions on agency operations, Wheeler said, and it can hold sessions outside the public eye if necessary. 

It’s not reasonable to expect lawmakers on the committee to sit on their hands for months or longer, he said, before attending to the business of oversight because of potential legal proceedings. 

“We have to find a way for us to be able to do our job at the same time the judicial branch does its job,” Wheeler said. “I think that’s what this route allows us to do.” 

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Sen. Tim Reed, R-Brookings, wondered what might stop departmental representatives from stonewalling in the face of a subpoena and citing the same rules for public statements from lawyers.

A subpoena could be challenged or modified in court, Wheeler said. If the Legislature’s subpoenas survive a challenge and departmental employees still don’t answer questions, he said, “it’s actually a matter of contempt, which is in itself a class two misdemeanor.”

The two committee members who opposed the subpoenas each expressed doubts prior to the vote. Rep. Drew Peterson, R-Salem, asked Houdyshell if the department intends to wait until every legal matter is finished before explaining new internal controls.

“We cannot delve into the details in this forum until any of the potential litigation has been resolved,” Houdyshell said.

Sen. Dean Wink, R-Howes, suggested the potential to influence the courts is something that justifies waiting for answers.

“I don’t think the Legislature has the authority to supersede the legal process in this situation,” Wink said.

Sen. Jean Hunhoff, R-Yankton, said if all the audit committee can do is nod yes when a department head says “trust us, we’ve got it under control,” committee members may as well stay home. 

“It’s not that I don’t trust people, but I don’t trust people anymore,” Hunhoff said. “There’s too many things that have happened in the last couple of months.”