Current Weather

You are here

Lawmakers ponder next step in treasurer’s office probe

LITTLE ROCK — Lawmakers want to know much more about problems found in an audit of state Treasurer Martha Shoffner’s investment practices.

But based on often conflicting testimony given by Shoffner and top aides during a marathon hearing last week about investments exceeding exceeding $1 billion, some think a prosecutor ultimately will have to be called in to consider any criminal implications.

“I think it would be premature to do it now, but I think there is an excellent possibility that it will be referred to the prosecutor because you’ve got people saying different things under oath,” said Rep. Tim Summers, R-Bentonville, co-chairman of the Legislative Joint Auditing Committee. “Somebody’s not telling the truth and we certainly need to get some answers.”

Summers and co-chairman Sen. Bill Pritchard, R-Elkins, said any decision on calling in a prosecutor to investigate any allegations of wrongdoing will be made after state auditors complete an expanded audit of the treasurer’s investments. State auditors told lawmakers their review would take until at least late October.

The initial audit of a dozen bond sales between July 1, 2011, and May 17 concluded that the state incurred a net loss of $835,931 because the bonds were sold early, rather than being allowed to mature.

Asked repeatedly by lawmakers during a three-hour hearing Sept. 17 why the bonds were sold early, Shoffner said she did not know and would have to review the transactions.

At the end of the hearing before the Legislative Joint Auditing Committee, the panel directed state auditors to review bond sales over the past four years, particularly those in which bonds were sold before maturity. Jon Moore, deputy legislative auditor, said auditors had so far found 29 transactions between Sept. 8, 2009, and Feb. 6 in which bonds were sold early.

Lawmakers want Shoffner to explain the decisions she made about the transactions, and why the treasurer’s office used a single broker with ties to Shoffner to make the bulk of the bond sales.

Steele Stephens of Little Rock handled $1.69 billion in bond sales, first as an employee of Apple Tree Investments Inc. of Little Rock and later with St. Bernard Financial Services Inc. in Russellville.

Shoffner, who is from Newport, acknowledged during her testimony that she and Stephens’ father, Stephen O. Stephens of Newport, have been friends for years. But Shoffner said she did not know Steele Stephens was his son until after she met the younger Stephens at the state Capitol to discuss state investment opportunities.

Sen. Jonathan Dismang, R-Searcy, questioned the treasurer’s competence and judgement.

“I think we’ve got multiple issues and a lot of different layers,” he said. “Maybe this is a show of (a lack of) leadership or a lack of diligence on your part to care about the issue, or care about the audit report, but we’re talking about a significant sum of money.”

Shoffner has said she would not resign.

Other members appeared even more concerned with conflicting testimony from Shoffner and her chief investment officer, Autumn Sanson.

Among other things, Sanson contradicted Shoffner’s testimony that Shoffner was never advised against selling bonds before they matured. Sanson told the panel she advised her boss’ not to sell bonds early.

“You do remember, and you do understand completely that all of these proceedings are being recorded and that you are all under oath,” Pritchard asked Shoffner, Sanson and Debbie Rogers, the treasurer’s chief of staff, as they sat together and testified during the hearing. “I just want to make sure because we’ve had a couple conflicts in statements and I just want to be sure that everyone is aware that those are not just off-the-cuff statements, that they are being recorded.”

Before answering the question about the advice she gave Shoffner, Sanson asked lawmakers if she would be protected under the state’s whistleblower law, saying she feared for her job if she answered truthfully.

“There are some things that I made the treasurer aware of … (advice) that I have given her in the past year that I feel like she did not listen to, and we’ve gone in the wrong direction because of that,” Sanson told the panel.

At the request of Rep. John Burris, R-Harrison, Shoffner agreed not to make any personnel changes with Sanson or two other members of her staff who testified before the committee until after the auditor’s report is complete and presented to lawmakers.

After the meeting, Shoffner said she was “stunned” by Sanson’s comments.

“I couldn’t even think for the rest of the (meeting). I’m shocked, I’m shocked,” she said.

She then turned to Rogers, who was walking with her, and asked if she was shocked.

“Yes I am,” Rogers replied.

Shoffner said she actually was pleased with the results of the audit report and appreciated suggestions for improvements, including hiring a third-party money manager to help with investment decisions.

“I think it’s a good idea. In this economic downturn we need every economic advantage we can get,” she said.

Pritchard said later that testimony during the hearing revealed “some possible flaws in the system,” including having no requirement that the state treasurer or senior staff have extensive experience in finance.

During the hearing, Shoffner said she, Sanson and Rogers make all investment decisions for the office, relying heavily on the advice of brokers handling the sale. None said she had any advanced education or training in bond investments. Sanson did say she had a college degree in finance and Rogers said she had worked more than 20 years in the treasurer’s office.

Shoffner, who served eight years in the state House, said her experience was serving on the Joint Budget Committee while in the Legislature.

“It’s pretty amazing that we have people over there responsible for $3.5 billion and nobody there is a CPA, nobody with any past experience … and that has to do with the system,” Pritchard said in an interview. “That is certainly something we also will look at.”

Shoffner did not return a telephone call Friday for comment.

The Cabot Star Herald, Lonoke Democrat, and Carlisle Independent websites are available only to print and digital subscribers. If you are already a subscriber, you can access these websites at no additional charge.