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.