Feds allege Shoffner received kickbacks for targeted bond transactions


LITTLE ROCK — State Treasurer Martha Shoffner took thousands of dollars in kickbacks, delivered covertly in a pie box, for directing the bulk of bond transactions made by her office to a single broker, federal authorities allege in a complaint filed Monday.

After spending two nights in the Pulaski County Jail, Shoffner appeared in U.S. District Court on Monday. She was released on her own recognizance and had to surrender her passport. She did not enter a plea. Her lawyer, former U.S. Attorney Chuck Banks, said later that Shoffner would plead innocent to a charge of “Extortion Under Color of Official Right under the Hobbs Act.”

A conviction could carry a sentence of no more than 20 years in prison and a fine of up to $250,000, or both.

FBI agents arrested Shoffner, a Democrat, on Saturday at her home in Newport.

Gov. Mike Beebe on Monday called for the embattled state treasurer’s resignation, as did the chairmen of both major political parties and a growing number of Shoffner’s fellow Democratic officials.

“It would be very hard, in my opinion, for that office to properly function under continued leadership so I think she should resign, and I think she should resign immediately,” Beebe told reporters before an afternoon event at the Governor’s Mansion.

In response to a question, Beebe, who would be responsible for appointing a new state treasurer should Shoffner resign, said he was “thinking about potentials, but there are no immediate names.” He also said he has not talked with anyone about taking the position.

Article 15, section 3 of the Arkansas Constitution says that “the governor, upon the joint address of two-thirds of all the members elected to each House of the General Assembly, for good cause, may remove the Auditor, Treasurer, Secretary of State, Attorney General, Judges of the Supreme and Circuit Courts, Chancellors and Prosecuting Attorney.”

Attorney General Dustin McDaniel, U.S. Sen. Mark Pryor and gubernatorial candidates Mike Ross and Bill Halter — all Democrats — said Shoffner should step down. So did 22 freshman Democratic state representatives.

Upon leaving the courthouse Monday afternoon, Shoffner said she had no plans to resign “at this time.” Part of the condition of her release was that she seek or maintain employment.

Banks said he planned to discuss Shoffner’s future as state treasurer with her later Monday.

“I know that (resigning) is something she will consider,” he said. “I’m not hired to give her advice about her political decisions; those are her decisions, but certainly I brought it up. … I know she’s apprehensive about the decision.”

Banks said Shoffner was “fatigued and distraught over the entire events of the weekend and especially the severity of the charges against her.”

In the information, authorities say the broker, who was not named, was working with the FBI when a prearranged $6,000 payment was taken to Shoffner’s residence Saturday. FBI agents later executed a search warrant and found the money in a cigarette pack in Shoffner’s kitchen, the document said.

It said Shoffner admitted receiving “multiple” $6,000 payments from the broker and told authorities she still had some of the cash she received from a previous payment. Agents said pie-box deliveries were made to her home in Newport, to her apartment in Little Rock, and to the state Capitol.

The information said the broker made at least six payments of $6,000 each to Shoffner — two each to the three locations.

“Shoffner admitted that she knew it was wrong to accept the payments,” wrote FBI agent Richard McLain.

Beebe, a lawyer and former state attorney general, said the federal case against Shoffner appeared to be “ironclad.” He said he was “shocked by just how blatant the conduct was, based on the allegations.”

The broker, who authorities said also had previously donated $2,000 to Shoffner’s campaign in 2009 and paid $4,700 for her political watch party, was granted immunity by the U.S. attorney’s office for agreeing to help authorities in their investigation.

“I can tell you it was not an easy decision,” U.S. Attorney Chris Thyer said during a news conference. “It was a decision that was made out of necessity more than anything else. At the core of this particular conspiracy, as alleged in the affidavit, there were two people and if both of those two people remained silent we would not be here today.”

Shoffner’s weekend arrest and court appearance on Monday hurt the public’s confidence and trust in elected officials, Thyer said.

“The allegations against Miss Shoffner are serious. They completely erode the public trust that we put in our elected officials if they they are proved to be true,” the prosecutor said. “When that trust is broken, punishment is due. ”

The complaint said a current employee in the treasurer’s office approached the FBI in January 2012 and said that Shoffner was using one broker over others and not following historical investment practices at the office. A former employee in the office was later questioned by authorities and detailed how Shoffner in mid-2011 began shifting most of the investments to one specific broker more than others.

The broker was later interviewed and admitted to a financial arrangement with Shoffner and agreed to cooperate with authorities, the complaint said.

Thyer said he did not know how much money the broker made during the time period in which a bulk of the bonds were being sent to him.

A state auditor confirmed in January that Shoffner, serving her second term as state treasurer, had been under federal investigation for more than a year for her handling of bond sales in her office.

In December, the Legislative Joint Audit Committee requested a criminal investigation into the way Shoffner’s office sold bonds, including her decision to sell bonds before they matured. A state audit report of Shoffner’s dealings was turned over to the Pulaski County prosecutor. Prosecutor Larry Jegley said his office is not investigating Shoffner.

The audit found that eight of 30 bond transactions between Jan. 1, 2007, and May 17, 2012, were made to St. Bernard Financial Services of Russellville. Each of those transactions was made before the bonds matured, resulting in an economic loss of $783,835.

Several of the other 22 transactions made money, lowering the overall economic loss on the bond sales to $434,249 during the time period.

The bond sales by St. Bernard Financial were made by one broker, Steele Stephens.

Shoffner told the legislative panel in December that she and Stephens’ father, Steve Stephens of Newport, have been friends for years. She previously told the committee that she did not know Steele Stephens was his son until after she and Steele Stephens met at the state Capitol to discuss state investment opportunities.

Shoffner said she never received any personal financial benefits from Russellville-based St. Bernard or any other firm with which her office had dealings. She did say the father of the broker had donated to her campaign and helped organize a campaign fundraiser on her behalf.

Robert Keenan, CEO of St. Bernard, said in January that his firm and Steele Stephens “haven’t done anything wrong and we’re not the least bit concerned with anything any law enforcement office wants to look at.”

Arkansas Business reported in January that federal investigators, including the FBI, are also investigating allegations that Shoffner converted political campaign funds to personal income. A spokeswoman for the U.S. attorney’s office in Little Rock declined comment at the time.

During this year’s legislative session, lawmakers approved a measure intended to tighten procedures and accountability in the treasurer’s office.

Act 1088 of 2013 increases the size of the state Board of Finance and expands the panel’s oversight of state investments by the treasurer’s office. It also authorizes the board to decide who works at several important positions in the treasurer’s office, and details a series of required procedures for various investments handled by the state treasurer.

Shoffner did not oppose the changes.

Reporter John Lyon contributed to this report.