Shoffner disputes aide’s bond-buy notes

— The chief investment officer for state Treasurer Martha Shoffner said in a handwritten note that she voiced her concern to Shoffner in June 2011 about giving “so much more [business] than we’ve ever done” to a broker with St. Bernard Financial Services Inc. of Russellville, and Shoffner told her that “we could ‘justify’ doing more with them.”

Chief Investment Officer Autumn Sanson’s note indicates that she also advised Shoffner that “no matter what happens that this would raise a ‘red flag’ with auditors” and “my advice was not taken.”

Sanson’s note — which wasn’t addressed to anyone — is dated July 5, 2011, and said these developments occurred on June 29, 2011, a day on which she and Shoffner met with broker Steele Stephens of St. Bernard and Stephens was given “our portfolio (which we have never done before).”

Shoffner said Friday in an interview that Stephens was given information about the treasurer’s office’s investment portfolio “without names [of brokers]. Just numbers.”

She said she didn’t tell Sanson that she wanted the treasurer’s office to do more business through Steele, and Sanson “never did” voice a concern about that. She said she “never” told Sanson that she could “justify” doing more business with St. Bernard Financial Services.

Shoffner said Sanson also didn’t advise her that “this would raise a ‘red flag’ with auditors” but Sanson did tell her that when St. Bernard Financial Services Inc. was the broker for more than $300 million in bonds with the office that it might raise “a flag” with auditors. Shoffner said a state auditor advised that the decision of how much in business to do with the firm is hers to make.

Sanson declined Friday to respond to Shoffner’s disputing Sanson’s notes.

The treasurer’s office on Friday afternoon released copies of notes written by Sanson in response to the Arkansas Democrat-Gazette’s publicrecords request for her notes referring to transactions cited by state auditors that they said had a net economic loss of more than $890,000. Sanson made a reference to her written notes in testimony before lawmakers Monday.

State auditors said about $835,000 of the state’s net economic loss from these transactions stemmed from the early sale in 2010 of a bond purchased in 2008. They said that’s the difference between the $3.49 million the state would have earned if the bond had been held to maturity and the $2.66 million it earned from the sale of the bond and earnings from the subsequent use of the funds.

But Robert Keenan, chief investment officer for St. Bernard, said Friday that the state’s actual net profit on the transaction was $534,610 because its gain of $3.925 million exceeded its potential gain of $3.39 million.

Keenan said he included interest of $1.16 million that the state earned on the bond prior to its sale on Jan. 22, 2010. Deputy Legislative Auditor Jon Moore said that’s the major difference between auditors and Keenan’s calculations, and he doesn’t believe it should be factored in, while Keenan said it should.

Sanson told lawmakers Monday that she advised against these transactions in which bonds were sold early, an assertion that Shoffner denied to lawmakers.

In her written note dated July 20, 2011, and addressed to no one, Sanson said that Joey Buddenberg with the Legislative Audit Division “came to me to voice his concern with this $100 mm trade after he conducted a review of our investments. I then called Martha to let her know about the conversation and she told me once again that we could justify it.”

Shoffner said she doesn’t recall such a conversation and she “never told” Sanson “I could justify it.”

Buddenberg could not be reached for comment at his office late Friday afternoon.

In her written notes on an e-mail dated Sept. 23, 2011, to Shoffner, Sanson said she “spoke with Martha on this date and voiced my concern with giving Steele a full 100 mm trade. She told me that we could ‘justify’ it and to do it. We get the same rate with him as we did with 2 other brokers that day.”

Shoffner said Sanson didn’t voice such a concern and she didn’t tell her that “we could justify it.”

“It’s my word against hers,” Shoffner said.

Shoffner said she doesn’t believe Sanson’s written notes contradict Shoffner’s testimony to lawmakers on Monday because much of Sanson’s notes are inaccurate. Lawmakers may explore this at a meeting later this fall.

Last October, Shoffner told the Democrat-Gazette that she didn’t realize that the treasurer’s office purchased more than $500 million in bonds through St. Bernard, one of the 13 brokers her office dealt with on bond investments.

The office’s records at that time showed its bond investments totaled $1.688 billion, of which $518 million went through St. Bernard Financial Services of Russellville. The next-largest amount was $220 million through Morgan Keegan.

“That’s ... not out of the ordinary,” Shoffner told the paper last year. “We work with the firms that bring us the best pricing.” Asked whether the office received the highest interest rate available each time it invested in bonds through St. Bernard, she replied, “To my understanding. I have a chief investment officer, too.”

At that time, Sanson referred questions to the office’s then-interim chief deputy, Debbie Rogers, who said Shoffner and Sanson approve each of the office’s investments.

Shoffner told lawmakers Monday that she couldn’t recall why her office sold bonds early in the transactions that auditors said had the net economic loss of more than $880,000. These transactions also include brokers Morgan Keegan and the Bank of Oklahoma.

After state Rep. John Burris, R-Harrison, advised Sanson on Monday to retain an attorney, Little Rock attorney Reggie Koch said Thursday that Sanson has retained him.

Moore, the deputy legislatve auditor, said the treasurer’s office has purchased $1.69 billion in bonds through Steele Stephens at Apple Tree Investments Inc. and then St. Bernard between July 2008 and March 31, 2012.

Shoffner, a Democrat, has been state treasurer since 2007. Her term runs through 2014.

Moore said St. Bernard has been paid at least $2.3 million in commissions on bond transactions involving the state treasurer’s office over the past few years.

This week, Keenan said, “Everyone is complaining about why St, Bernard is getting so much of the business [and] no one ever asks the question, ‘Maybe their prices are better?’

“All of this mess started about this time last year when we sold a single $100 million block of bonds to the state,” he said.

Front Section, Pages 1 on 09/22/2012

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