LITTLE ROCK — Correction: The state treasurer’s office purchased $1.69 billion in bonds from broker Steele Stephens of Apple Tree Investments from May 2008-May 2009 and from St. Bernard Financial Services since June 2009, according to legislative auditors. The wrong figure was used in this article.

A legislative committee decided Friday to ask law enforcement agencies to review the state treasurer’s office decisions that auditors say cost the state about $434,000 because some bonds were sold before they had matured.

Deputy Legislative Auditor Jon Moore told the committee that the treasurer’s office sold 30 bonds on advice from brokers without analyzing the merits of the sales, costing the state that much in earnings.

The committee voted to send the audit to the appropriate state and federal authorities after state Treasurer Martha Shoffner told lawmakers that her office “didn’t consciously show preference” to a Russellville-based bond broker.

But Shoffner’s chief investment officer told the legislators that Shoffner instructed her to do more business with that firm.

In a committee session nearly three months ago, chief investment officer Autumn Sanson told lawmakers that she had advised Shoffner against selling bonds before their maturity, but Shoffner denied Sanson’s assertion.

“There is a lot of smoke, and we need to get to the bottom of it to find exactly who did what,” state Rep. Tim Summers, R-Bentonville, said Friday.

Summers, co-chairman of the Legislative Joint Auditing Committee, proposed that the committee refer the audit to state and federal law enforcement officials.

“It’s the public’s money, and it’s their right to know,” he told reporters.

The committee’s other co-chairman, Sen. Bill Pritchard, R-Elkins, said Bureau of Legislative Research and audit division officials have been instructed to decide what legislation is needed “to clean this thing up to have some better controls and oversight” of the state treasurer’s office investments of more than $3 billion.

Two Republican lawmakers - state Sen. Jason Rapert of Bigelow and state Rep. David Meeks of Conway - said after the meeting that they believe that Shoffner should resign.

Shoffner, a Democrat from Newport, has been the state’s treasurer since 2007; her term ends Dec. 31, 2014.

In response to lawmakers’ questions, Shoffner acknowledged that she has received campaign contributions from several people who do business with her office. But she said she hasn’t received these contributions in the form of cash nor any compensation from the Russellville-based broker or other brokers.

She didn’t have any previous personal relationship with any of the brokers or develop any such relationship after taking office, she told the committee.

Shoffner voiced surprise that the committee voted to refer the audit to law enforcement authorities. If law enforcement officials want to interview her, she said, she would agree to do that.

Shoffner told lawmakers in September that she couldn’t recall why her office had sold a dozen bonds from its investment portfolio before their maturity dates and purchased similar bonds from the same brokers. Auditors estimated then that the transactions cost the state several hundred thousand dollars in earnings.

In response to that question, Shoffner wrote to the committee that during this time, “markets were declining and the bonds were sold before the call date in order to capture a premium, which would have been lost if held to call.”

The audit released Friday by the Legislative Audit Division reported 18 other early bond sales by the treasurer’s office, beyond the dozen reported in an audit released in September.

Auditors found that eight of the bond transactions, involving St. Bernard Financial Services Inc. of Russellville, resulted in a net economic loss for the state of $783,835, Moore said.

The net economic loss was calculated by comparing what the state’s treasury would have earned by holding the original bonds to their maturity against what the treasury earned by selling the bonds, he said.

But after the meeting, Robert Keenan, chief executive officer for St. Bernard Financial Services, disagreed with Moore’s numbers and said the state made profits on the transactions.

Moore said six of the bond transactions, involving Morgan Keegan, had a net economic loss of $25,123; and one bond transaction, involving Delta Investments, had a net economic loss of $7,733.

Seven of the bond transactions, involving Crews & Associates of Little Rock, had a net economic gain of $210,689; and eight of the transactions, involving the Bank of Oklahoma Investments, had a net economic gain of $171,753, according to Moore.

He said the state treasurer’s office purchased $1.69 million in bonds from broker Steele Stephens of Apple Tree Investments from May 2008-May 2009 and from St. Bernard Financial Services since June 2009, almost double the amount purchased from any other broker.

The treasurer’s office did not maintain records demonstrating that bonds were purchased from the broker who provided the best price, Moore said, adding that, without those records, “no advantage to the state is apparent from the concentrated use of this one broker.”

Securities Commissioner Heath Abshure said the greater part of broker-agents Steele and Steve Stephens’ business done through St. Bernard Financial Services is with the state treasurer’s office.

When asked about that after the committee meeting, Keenan replied, “I can’t discuss that per federal regulation.”

Shoffner told lawmakers that the state has a good investment policy and that the treasurer’s office has earned $164 million on state investments since January of 2007.

She noted that her office has conducted more than 900 bond transactions since 2007, while the audit focuses on 30 transactions in which bonds were sold early.

The state earned $10 million on the early sale of the bonds and $5 million more from the bonds purchased to replace the original bonds, she said.

Shoffner said her office has been working to increase documentation of its transactions, has hired a new investment manager to work with Sanson, and is open to discussions with lawmakers about changing state laws to give it more flexibility with its investments.

But Summers pressed Shoffner about why her office has done more bond business through St. Bernard than other firms.

“We didn’t consciously show preference to them even though it appears that way,” Shoffner replied.

While Steve Stephens is a good friend, “there was no preferential treatment given because of that,” she said.

Sanson said Shoffner instructed her to do more business through St. Bernard, but Shoffner didn’t give a reason for doing so other than “we could justify using them.” Shoffner has denied doing that.

Shoffner’s chief deputy, Debbie Rogers, said she doesn’t know why St. Bernard received more business.

“I am sorry. I don’t either,” Shoffner added.

Sen. Linda Chesterfield, D-Little Rock, told her colleagues that Shoffner “has responded with grace under fire.”

She suggested that lawmakers who have ideas for improving the office put their suggestions to Shoffner in writing.

“What is unfortunate is that there is nothing in the title of treasurer when an individual runs that said they must have all this background,” Chesterfield said.

“It is simply a citizen position and that citizen offers him or herself to service, and when they do it, they do it with the knowledge that people can be critical,” Chesterfield said.

But Meeks and Rapert said they think Shoffner should resign.

“Even if there was no criminal activity whatsoever, she didn’t have proper controls and there was a lot of other things in her office that’s resulted in the loss of money for the people of the state of Arkansas,” said Meeks.

“I think the level of that rises to her needing to resign,so we can move forward,” he said.

Rapert said Shoffner has mismanaged the treasurer’s office and lacks an understanding of her office’s investments.

“I just think that she is a distraction to the office of the treasurer,” he said.

Shoffner could not be reached by telephone for comment late Friday afternoon about the calls for her to resign. But Rogers said Shoffner has no plans to resign.

Asked whether Democratic Gov. Mike Beebe believes that Shoffner should resign, Beebe spokesman Stacey Hall replied that Shoffner “is an elected official, and we are not going to get in the middle of that discussion.”

Front Section, Pages 1 on 12/15/2012