LITTLE ROCK — A legislative panel voted Friday to request a criminal investigation into the way state Treasurer Martha Shoffner’s office sold bonds, including her decision to sell bonds before they matured that cost the state more than $434,000 in potential earnings.
Rep. Tim Summers, R-Bentonville, co-chairman of the Legislative Joint Auditing Committee, said the director of the Division of Legislative Audit would decide whether to ask the state police or the U.S. attorney’s office to review 30 bond transactions by Shoffner’s office.
Summers told reporters after the committee met Friday that he did not know if any crimes had been committed.
“The one thing I’m certain of is there’s a lot of smoke and we need to get to the bottom of it,” Summers said. “We want to know what went on and who is responsible for it, and if there was anything that went on that wasn’t proper.”
Shoffner said after the meeting she was surprised by the panel’s decision and any suggestion there was an improper relationship between her office and one of the brokerage firms, Russellville-based St. Bernard Financial Services, and that the firm received favorable business was unfounded.
“I’m just sorry that all came out,” Shoffner told reporters. “All the brokers are friends and we have a good relationship with them, but absolutely not with any regard to (impropriety).”
A state audit of Shoffner’s bond sales found that eight of the 30 transactions between Jan. 1, 2007, and May 17 of this year were made by St. Bernard Financial Services. 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 said she and Stephens’ father, Steve Stephens of Newport, also her hometown, 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.
In response to the questions by several lawmakers Friday, Shoffner said she never received any personal financial benefit from St. Bernard or any of the other firms. She did say Steve Stephens has donated to her campaign and helped organize a campaign fund raising event on her behalf.
Robert Keenan, CEO of St. Bernard, did not attend Friday’s meeting and did not immediately return a telephone call or e-mail request for comment Friday afternoon.
Keenan has previously said that lawmakers should understand “the difference between cash and economic loss” and that all of the trades involving his company “were very profitable.”
During Friday’s meeting, Shoffner said she relied on the advice of brokers and admitted that her staff did not do an independent analysis when selling bonds before they matured.
The state treasurer also said she has hired a new investment manager who has experience in banking to help her department make better decisions, and that her office is changing its practices and improving documentation procedures as recommended by state auditors.
“We’re taking all of the recommendations and we’re going forward with new policies and new implementation,” she said. “We look forward to rectifying everything.”
Summers said after the meeting that he expects a number of proposed changes to the way the treasurer’s office sells bonds and handles all state finances to be filed during the legislative session that convenes next month.
He said the office’s sale of bonds needs more oversight and the employees need more education and expertise in such complex financial issues.
“We need people that are very knowledgeable, people that advise and people who transact,” he said.
At one point during Friday’s meeting, some lawmakers suggested that some transactions may have involved “churning,” a term that refers to an illegal practice where sales are made more frequently because the company making the sale receives a commission on each transaction.
“Are you aware of any events or any actions that are referred to as churning?” Rep. Terry Rice, R-Waldron, asked Shoffner.
“No,” she responded, joking that churning was involved in the process of making butter.
“We’re in a little more serious thing than making butter,” Rice said.
“No I am not, I’m sorry,” she replied.