LITTLE ROCK — State Treasurer Martha Shoffner and one of her top investment advisers gave conflicting testimony before a legislative committee Monday over key findings in a state audit critical of how the office sold state bonds.
Autumn Sanson, the treasurer’s chief investment officer, asked lawmakers whether she would be protected as a whistle blower after she was questioned why the treasurer’s office sold bonds before they matured, resulting in lower yields. A lawyer for the Legislative Joint Auditing Committee said a judge would have to make that determination.
Sanson later testified that she advised Shoffner not to sell bonds before they matured. Shoffner told lawmakers that no one on her staff had spoken against the practice.
"I’m shocked," Shoffner said after the meeting about Sanson’s comments. "I couldn’t even think for the rest of the meeting."
An audit found that Shoffner’s office sold bonds from its investment portfolio to selected brokers before before the bonds reached maturity and later purchased bonds from the same investment brokers. The audit concluded that if the bonds had been allowed to mature the state would have made an additional $58,172.
Shoffner was repeatedly asked during the three-hour meeting why the decision was made to sell the bonds early, but did not give an explanation.
"I’ll have to research that," she said.
Lawmakers appeared frustrated with Shoffner’s inability to answer specific questions.
"I think that’s a problem," said Sen. Jonathan Dismang, R-Searcy. "We’re talking about a significant amount of money."
Jon Moore, a deputy legislative auditor, told the committee that the audit looked at 12 bond sale transactions between July 1, 2011, and May 17, 2012. The bonds were valued at more than $240 million and replaced with similar bonds.
Moore estimated the "net loss" of selling the bonds early at $58,172, and that the "loss could have been avoided if the treasury had held original bonds until called."
Sen. Linda Chesterfield, D-Little Rock, was the first lawmaker to ask the question that was on everyone’s mind.
"I’m trying to figure out why you would sell?" Chesterfield asked.
"I don’t know that answer, I honestly don’t," Shoffner replied.
During Chesterfield’s questioning of Shoffner it was revealed that the treasurer’s office has no Certified Public Accountant on staff and that Shoffner, Sanson and the office’s chief deputy make investment decision based on recommendations from the brokers hired to make the sales.
The audit also found that the bulk of the $3 billion in bond sales through Shoffner’s office — $1.69 billion — were made by two firms, Apple Tree Investments, Inc. from May 2008 to May 2009, and St. Bernard Financial Services Inc. in Russellville since June 2009.
Lawmakers were told that the bond sales were actually made by one broker, Steele Stephens, who worked for Apple Tree and then moved to St. Bernard Financial Services.
Shoffner said she and Stephens’ father, who is from Newport, have been friends for years, but 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.
Robert Keenan, CEO of St. Bernard, attended the meeting and said later that lawmakers should understand "the difference between cash and economic loss."
"All these trades were very profitable," he said.
Also during the meeting, lawmakers asked Shoffner if she had ever been advised by anyone on her staff, or by previous chief of staff Karla Shepard, against giving so much business to a single investment company. She said no.
However, Shepard, who no longer works for the office, said after the meeting that she did advise Shoffner against the practice.
Shoffner and others who appeared before the committee testified under oath.
The committee directed state auditors to review all bond sale and investment transactions made by the treasurer’s office since 2010. Sen. Bill Pritchard, R-Elkins, said he hopes the panel can meet again to discuss that audit in late October.
The committee was originally scheduled to discuss the audit Friday, but had to reschedule because Shoffner was a no-show, even after the panel issued a subpoena to compel her to attend.
State police served a subpoena on the state treasurer Friday afternoon in Newport.
Shoffner apologized to the committee Monday, saying she had planned to attend the meeting but opted to go to a meeting in Newport on an economic development project because she thought her chief deputy and other top staff could answer the committee’s questions. Top members of the treasurer’s staff attended the meeting but were not asked to testify.
The audit also found that the treasurer’s office did not record the loss separately from interest income, in accordance with generally accepted accounting principles. A 2011 audit found that the treasurer’s office sold bonds to brokers before they were called or reached their maturity dates, purchased similar bonds from the same brokers, and then reported the sell/purchase activity.