Monday, September 17, 2012

UPDATE: 'Whistleblower' at treasurer's hearing; caution for security firm

Posted By on Mon, Sep 17, 2012 at 2:30 PM

ON DECK: Treasurer Martha Shoffner waiting her time before legislative audit.
  • Brian Chilson
  • ON DECK: Treasurer Martha Shoffner waiting her time before legislative audit.

As we move toward state Treasurer Martha Shoffner's belated meeting this afternoon with the Legislative Audit Committee over her office's investment practices, it's a good time to share a letter from the Arkansas Securities Department to Robert Keenan Jr. and Steele Stephens and their St. Bernard Financial Services of Russellville, a small securities dealer that has done hundreds of millions of dollars worth of bond transactions with the treasurer's office, including some of those questioned in the recent audit.

In a letter Aug. 29, staff attorney Scott Freydl cautioned Keenan and St. Bernard for failure to have a reliable e-mail retention system as late as fall 210. That made it impossible for the Securities Department to review information including "about securities offered and sold by St. Bernard to Arkansas clients, risk and suitability information provided to Arkansas clients by St. Bernard ..."

The letter cautioned Stephens for being unable to produce verbal or written evidence that, at the time of sale, he gave the treasurer's office "necessary information concerning a replacement bond that was sold to this institutional customer in January 2010." As a result, the agency couldn't determine if Stephens had complied with his "suitability obligations" to the treasurer's office. "Specifically, it is impossible for the staff to determine that Stephens had a reasonable basis for concluding that the Arkansas state treasurer's office was making an independent investment deicsion, when this bond replacement was sold by Stephens."

The letter said the staff has "serious concerns" that the missing written records may have contained evidence of rule violations concerning securities Stephens sold to the treasurer's office and of a failure of Keenan and St. Bernard to meet supervisory requirements.

The letter notified Keenan, Stephens and St. Bernard that evidence of rule compliance was expected. "Finally, the staff stresses that any future violations of the aforementioned sections or any other sections of the Act, the Rules or FINRA rules will not be treated as leniently by the staff."

The Securities Department findings relate to transactions mentioned in the Legislative Audit report last week. It cited a group of transactions in which bonds were sold and replaced with bonds paying lower interest rates. The audit noted too that the same broker, associated with St. Bernard, had done by far the most business with Shoffner's office.

Stephens and Keenan defended the business with Shoffner back when this story first developed here. Stephens, it happens, is the son of Steve Stephens, the former TV show host and a long-time licensed securities salesman himself, who, like Shoffner, hails from Newport originally. (But, correction, he's a good deal older than Shoffner, so it was inaccurate for me to say they grew up together there. I impute nothing from those shared roots — Mike Beebe was a Newport Greyhound, too — beyond saying that a familiarity born of common roots often helps bring people together in this small, interconnected state.)

SANSON: Rep. Nate Bell posted photo of her on Facebook.
  • SANSON: Rep. Nate Bell posted photo of her on Facebook.
UPDATE: Things got exciting about two hours into the hearing.

A staff member (Autumn Sanson, the chief investment officer), under questioning on decisions about bond sales that produced losses, inquired if she had whistleblower protection. She said, emotionally, that she feared retribution for her testimony. Shoffner, according to multiple early accounts, hasn't produced an answer on what led to bond sales that produced losses. Sanson said she advised Shoffner against the questioned sales. Shoffner disputed that.

Though Shoffner claimed investment decisions were collective and that she liked to spread the business around, Republicans legislators weren't satisfied with the answers. The committee will dig deeper into the office's bond business, back four years.

When the hearing began at 2 p.m. you could Republican cackling from the halls of Montezuma to the shores of Tripoli about the opportunity to lay bare some cronyism by a Democratic officeholder. A torrent of social media comments began. Legislative Audit helped the Republican slant by a big chart, displayed on a video screen, that compared rates of return for Shoffner with those of major state retirement systems.

Even the audit released last week noted that the need for liquidity in the treasurer's office and more limits on investments choices make it unrealistic to say the treasurer's rate of return could match the pension systems. In short, the treasurer has less tolerance for risk, which means lower returns, even on fixed-income investments. But the audit committee nonetheless posted the comparison on a big screen handy for rebroadcast by Republicans in the audience as if the comparison was apples-to-apples. It isn't, as even the head of Legislative Audit conceded in a letter you'll find on the jump. (Please don't read this as a defense of Shoffner. But the topic is not as simple as the GOP spinners would have you believe in every case.)

The most critical question — why did a single broker at a tiny rural clearing house get such a huge chunk of business — isn't the sort of thing the audit is likely to delve into. Other agencies, however, are capable of looking into whether any considerations entered into such arrangements. Shoffner has already endured questioning for hefty campaign contributions from people with an interest in state securities business and questions about how she reported spending of that money.

The audit committee said a single broker made $2.3 million in commissions from state business. There hasn't been testimony yet whether those commissions deviated from the standard rate on bonds, typically the same throughout the industry. That is, no one has addressed whether the same amount of bonds would have cost less handled by another dealer. Most sell a similar inventory and rates are typically standard. It IS, however, unusual to sell bonds to reinvest at a lower rate, as happened a dozen times according to the audit. One dealer speculated that it's possible that this was a case of discretion gone wrong. That is, the treasurer believed that the money could go to a higher paying instrument on a rise in the market that didn't occur. This is one reason for a limit on discretionary trading by the manager of money needed to be liquid to pay the state's obligations. But Shoffner didn't offer than by way of explanation.

The meeting ran until 5 p.m. before adjournment. The topic is to be taken up again. Shoffner apologized for missing Friday's meeting and promised a new direction in her office. She answered concerns about Sanson. — who alleged no wrongdoing — by saying she planned no personnel changes.

Roger Norman, head of Legislative Audit, responded to former Rep. Bruce Maloch when he raised a question about the high-profile comparisons of rates of return on Shoffner's investments and those of retirement systems.

Maloch's letter:


I know you have had a busy day! I have reviewed the audits on the Treasurer and State Board of Finance. It does look like there are plenty of issues there and I appreciate those being brought to light for the benefit of the state. I do have one reservation in the approach used in the Board of Finance report. In the politically charged environment in which we now live, the comparisons to the ARTS and APERS will provide political fodder for some when they have completely different investment objectives (long term perspective with higher risk tolerance vs. priority on liquidity
and safety). I do think the recommendations are sound, but it is not fair to compare the Treasury with the Retirement Systems.

Norman's response:


Thank you for your email. I agree that generally the perspectives are totally different. We limited our comparison to the fixed investments to try to limit some of the differences. However, I agree that the differences still exist. I think the point that we were trying to make was that the investment policies need to reviewed in light of all the changes the past few years. Please feel free to call and visit anytime. As always, we appreciate you and your comments. THANKS!



Tags: , , , , , ,

From the ArkTimes store


Speaking of...

Comments (27)

Showing 1-27 of 27

Add a comment

Subscribe to this thread:
Showing 1-27 of 27

Add a comment

More by Max Brantley

  • Executionpalooza

    Appearances count. I was struck by a single sentence over the weekend in a full page of coverage in The New York Times devoted to the killing spree in Arkansas, beginning with a front-page account of the recent flurry of legal filings on pending executions and continuing inside with an interview with Damien Echols, the former death row inmate.
    • Apr 20, 2017
  • Death Row inmates argue to keep stay of execution in place; urge 8th Circuit not to 'rush' analysis

    Early this morning, attorneys for nine Death Row inmates, filed an argument with the 8th United States Court of Appeals contesting the state's effort to override Judge Kristine Baker's order Saturday that halted executions scheduled this month.
    • Apr 17, 2017
  • Federal judge denies execution stay for Don Davis but larger stay continues

    Don Davis, who's been moved to the killing facility of the state prison for killing tonight at 7 p.m. if a stay of execution is lifted in another federal suit, sought a stay in another federal court Sunday, but the request was denied.
    • Apr 17, 2017
  • More »

Readers also liked…

  • Transgender electrician may sue employer over her firing

    Federal Judge Susan Webber Wright has ruled that Patricia Dawson, a transgender woman, may pursue her lawsuit that she was wrongfully fired by her employer, H & H Electric, because of her sex.
    • Sep 16, 2015
  • Arkansas Times Recommends: A Literary Edition

    Arkansas Times Recommends is a series in which Times staff members (or whoever happens to be around at the time) highlight things we've been enjoying this week.
    • Jul 1, 2016
  • 2nd guilty plea in bribery case over state mental health services

    Arkansas Business reports here on a federal court filing Wednesday that shows a second person has pleaded guilty to a bribery scheme to help a major contractor of the state Department of Human Services.
    • Sep 17, 2015

Most Shared

  • Executionpalooza

    Appearances count. I was struck by a single sentence over the weekend in a full page of coverage in The New York Times devoted to the killing spree in Arkansas, beginning with a front-page account of the recent flurry of legal filings on pending executions and continuing inside with an interview with Damien Echols, the former death row inmate.
  • Art bull

    "God, I hate art," my late friend The Doctor used to say.
  • Not justice

    The strongest, most enduring calls for the death penalty come from those who feel deeply the moral righteousness of "eye-for-an-eye" justice, or retribution. From the depths of pain and the heights of moral offense comes the cry, "The suffering you cause is the suffering you shall receive!" From the true moral insight that punishment should fit the crime, cool logic concludes, "Killers should be killed." Yet I say: retribution yes; death penalty no.
  • Judge Griffen writes about morality, Christian values and executions

    Pulaski County Circuit Judge Wendell Griffen, who blogs at Justice is a verb!, sends along a new post this morning.
  • The Ledell Lee execution thread

    Arkansas Times contributor Jacob Rosenberg is at the Cummins Unit in Grady filing dispatches tonight in advance of the expected execution of Ledell Lee, who was sentenced to death for the Feb. 9, 1993, murder of Debra Reese, 26, who was beaten to death in the bedroom of her home in Jacksonville.

Visit Arkansas

Haralson, Smith named to Arkansas Tourism Hall of Fame

Haralson, Smith named to Arkansas Tourism Hall of Fame

Chuck Haralson and Ken Smith were inducted into the Arkansas Tourism Hall of Fame during the 43rd annual Governor’s Conference on Tourism

Most Viewed

  • Lee's lawyer writes about executed man's last hours

    Lee Short, the lawyer for Ledell Lee, the man Arkansas put to death just before midnight last night, posted on Facebook the following letter of thanks for personal support and a bit about Lee's last hours, distributing his possessions and talking to family.

Most Recent Comments




© 2017 Arkansas Times | 201 East Markham, Suite 200, Little Rock, AR 72201
Powered by Foundation