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Monday, May 20, 2013

UPDATED: Shoffner charged with pie-box delivery of kickbacks from securities salesman; released after hearing

Posted By on Mon, May 20, 2013 at 10:29 AM

AFTER COURT: Martha Shoffner leaves court with her lawyer Chuck Banks (coat on arm) and family members.
  • Brian Chilson
  • AFTER COURT: Martha Shoffner leaves court with her lawyer Chuck Banks (coat on arm) and family members.

Photo illustration/rapgenius.com
  • Photo illustration/rapgenius.com
The details of the federal charge against State Treasurer Martha Shoffner have been released in a criminal complaint from the FBI.

Here's the document. And here's U.S. Attorney Chris Thyer's news release, which notes conviction could carry a maximum sentence of 20 years and a $250,000 fine. Details:

Shoffner was busted Saturday after receiving the latest in a series of $6,000 payments from a confidential source wired by the FBI (an unidentified securities dealer apparently given immunity from prosecution for cooperation). The source told the FBI he had paid Shoffner a total of $36,000 in six payments every six months, plus almost $5,000 in cash for a campaign event, in return for an increasing share of the state bond business.

Shoffner got several of the payments rolled up and sealed in a pie box. The money delivery brought to the minds of many the bribes paid to a corrupt warden in the movie "Shawshank Redemption." A new $6,000 payment was delivered to Shoffner that way Saturday by the source, who recorded their conversation. FBI moved in and arrested her after the transfer, finding the $6,000, plus some $100 bills left over from an earlier payment. The investigation began in January 2012, based on a tip to the FBI from an office employee, months before trading activities came under scrutiny of the Legislative Joint Auditing Committee.

The FBI complaint says Shoffner admitted wrongdoing during the arrest and helped them find the money she'd received illicitly.

Shoffner, attired in a black pantsuit, gave only one-word responses to Magistrate David Young during her brief court appearance. She was released on her own recognizance, on condition of regular reports to the probation office and surrender of her passport. Her attorney, Chuck Banks, said he would enter a not-guilty plea for Shoffner, but said they would sit down and discuss future plans. Shoffner didn't have an attorney until after her arrest, despite legislative probes and multiple reports about questionable office practices. The federal charge details her alleged illicit outreach for financial help from a source cooperating with the government last week.

Shoffner encountered reporters as she left the federal courthouse and departed in a pickup truck. Asked if she had anything to say to the people of Arkansas, she said she had no comment. Her attorney didn't conmment either. Asked if she planned to resign, she said: "Not at this time." If she were to resign, the governor would appoint a replacement to complete her term, which runs through 2014. The legislature, if in session, also could impeach her and remove her after a Senate trial.

Gov. Mike Beebe, like Shoffner, a Democrat, indicates he'll have a statement at 2 p.m. on his thoughts on whether Shoffner should continue in office. I trust the answer is a ringing no. UPDATE: Yes, Beebe called for her immediate resignation. The Arkansas Republican Party has, naturally (and, yes, correctly), called for Shoffner's resignation.

Attorney General Dustin McDaniel, like the Republican statement, made no presumption of guilt, but said the allegations were disturbing and ".... I believe that she should resign immediately to allow the work of the Treasurer's Office to continue." Will Bond, Democratic Party chair, said, " While treasurer Shoffner has the right to be presumed innocent, Arkansas taxpayers have the right to have confidence that their money is being invested and managed properly. In order to restore public trust and to allow the Treasurer’s office to operate its duties, we ask treasurer Shoffner to resign immediately.” Democratic gubernatorial candidate Mike Ross said Shoffner had "broken the public trust" and should resign immediately. Democratic candidate Bill Halter said, "Restoration of the public trust can only begin with the appointment of a new treasurer." U.S. Sen. Mark Pryor piled on. "Martha Shoffner should resign and be prosecuted to the full extent of the law. Arkansas deserves better."

A comment from Heath Abshure, director of the state Securities Department:

Just read the Criminal Complaint. We will certainly be looking into whether the payments were made with the knowledge of a broker-dealer firm or whether the payments were being made by an agent without the knowledge of the firm.

The Arkansas Times published Oct. 20, 2011, the first account of a a heavy concentration of treasurer's office business with Steele Stephens, a salesman with a small firm, St. Bernard Financial Services, based in Russellville. He and the firm have denied any wrongdoing in all public statements to date (including again today) and the confidential cooperating broker so far has not been identified. Also in reporting in October 2011, Stephens said he'd been just one of three sponsors of the 2010 campaign finance party mentioned in the charge. He never denied contributing to that. What appears to be amiss, according to the federal charge, is that Shoffner converted some of the money contributed to that event for her own use, not party expenses.

UPDATE: I spoke with Robert Keenan, chief executive of St. Bernard. He reiterates that he doesn't believe the charge relates to Steele Stephens or his firm. "He assures me it wasn't him and I believe him and trust him." Keenan said Stephens was at work today and that they'd talked Saturday night after news of Shoffner's arrest "shocked" them both. "We'll find out eventually if he's lying to me, but I don't think so."

Keenan said the identify of the person paying Shoffner ultimately should be revealed because, even if given immunity from federal prosecution, the person should lose his or her securities license. "If it was one of my employees, I'd let him go for not reporting it." He added, "I can't wait to find out who it is. we're getting bombarded up here with people who thinks it's us and not."

Keenan said the timeline in the federal charge didn't even match Stephens' record with St. Bernard becaue he didn't go to work there until late 2009 or so. He acknowledged that his firm had increased its share of state business substantially, but he continued to insist as he has all along it's because of lower commissions and better service. He continues, too, to take sharp exception with Joint Audit's evaluation of his own firm's record on state business, scoffing particularly an auditor's comment that investment firms should be better able to predict future interest rates.

LAWMEN: U.S. Attorneys Conner Eldridge and Chris Thyer said investigations continue in both the western and eastern districts of Arkansas on public corruption.
  • LAWMEN: U.S. Attorneys Conner Eldridge and Chris Thyer said investigations continue in both the western and eastern districts of Arkansas on public corruption.

Following is my shorthand of notes from David Koon's reading of the complaint over the phone:

The FBI developed a confidential source in January 2012. An employe of the office and a former employee of the office ultimately cooperated with FBI as confidential sources. FBI was advised Shoffner was using one broker over others, not following historical investment practices. Confidential source stated Arkansas holds $3.5 to $4 billion portfolio, including $1.5 billion in bonds. Source said historically treasurer's office had used about 10 brokers to execute bond orders. Source stated distribution had been relatively even. Mid-2011, source noted a major shift in allocation to one particular broker. Confidential source 2 stated that a confidential source, a broker not otherwise identified, invested the largest portion of state's bond portfolio.

In 2011, confidential source 2 confronted Shoffner about apparent favoritism. Shoffner responded, "They've done nothing for me." Source 2 also confronted the broker about apparent favoritism. And the source said, "I have been very good to Martha."

On Jan. 18, 2013, the FBI contacted the broker. The broker said he/she [the construction used in the complaint] had given two campaign contributions to Shoffner. First was a $2,000 contribution at a campaign event. The second was in the form of a campaign watch paty sponsorship in the form of $4,700 cash covering all expenses related to watch party.

The day before the broker was interviewed by the FBI, the source was contacted by employee of treasurer's office and instructed to go to back door at 11 a.m. Source was met by another employee and Shoffner. After employee left, Shoffner told source, "You gave me no cash and you just sponsored the watch party." It became clear to source that Shoffner kept the cash he provided the night of the watch party event.

In the fall of 2009, the broker was asked by Shoffner for larger gifts. She was "comfortable" asking for larger gifts because the source had been giving Shoffner smaller gifts prior to that time.

In 2009, Shoffner asked confidential source to purchase property for her in Little Rock. Source did not do so because Shoffner would be living on property and her name would be on paperwork for purchase of the property. After source didn't purchase property, Shoffner wanted $1,000 a month to pay her rent in Little Rock. The source didn't think it would be a good idea to meet on a monthly basis because it would look suspicious. Source recommended that they meet every six months. Source said the arrangement was for the duration of Shoffner's term in office. The source remembered six payments, starting in late 2009 or mid-2010. The source recalled payments were made, two each, at the state Capitol, her home in Newport and apartment in Little Rock, the most recent last December. That amounted to six payments of $6,000 each, in addition to the watch money party. The payments were generally in $100 bills.

In 2012, the source begin placing the payment — rolled up and sealed — in a pie box. This was done on the last two payments, both at Shoffner's Newport home.

The source began receiving more of the state's bond business after the source began making the payments.

FROM A CONSENSUALLY RECORDED CONVERSATION:

On January 19, 2013, Source met with Shoffner in Newport. They discussed the $6,000 payments. She said she had not told anyone about them. She said she told Legislative Audit in Sept. 2012 she didn't accept anything from Source 1. She said nothing in her finances would show anything different. The source asked if any other broker was doing what the source was doing. She said no other broker paid cash to her. Records show no other broker enjoyed such an increase in business.

The source talked to Shoffner about spending the cash. She said no one had questioned her about her spending of $100 bills.

May 9, Shoffner called the source, who recorded the conversation. She inquired about obtaining a loan to buy property next to her house in Newport. She wondered if someone else could bid on the property and keep her name secret.

The source suggested a meeting May 18 at Shoffner's house in Newport. Shoffner agreed to the meeting, approximately six months after the last meeting. The source took $6,000 provided by the FBI to make another payment similar to those made before.

May 18, the source and Shoffner met in Newport. The source was wired to transmit or record their conversation. The $6,000 was rolled up and placed in a pie box. During the meeting, the source gave the box to Shoffner. After the source left, the FBI executed the search warrant. The $6,000 was located in a cigarette pack in Shoffner's kitchen. She told agents where she'd placed the money.

Shoffner in an interview admitted to receiving $6,000 payments. She still had some from the last payment and provided it. She admitted that she knew it was wrong.

The charge said she conspired to extort money as a public official and transferred state business to the source in return.

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