LITTLE ROCK — State Treasurer Martha Shoffner said she didn’t realize that the treasurer’s office purchased more than $500 million in bonds through one of the 13 brokers her office dealt with on its current bond investments.
The office’s records show 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 said in an interview this week. “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.”
That investment officer, Autumn Sanson, referred questions to the office’s interim chief deputy, Debbie Rogers, who said Shoffner and Sanson approve each of the office’s investments.
It “didn’t even enter my mind that was getting out of line” as the investments through St. Bernard accumulated, Shoffner said. “It is not who it is or how much.It is what we invest in. We just want to make the best yields. ... I wasn’t aware that it has gotten to this point, but that just happens, and it happened with several others, one over $600 million over an 18-month period.”
Shoffner said she thought her office had about $300 million in bond investments through St. Bernard, and Sanson “keeps up with that,” and Shoffner didn’t realize the purchases exceeded $500 million. “Our auditors look in there every so many months or whatever and check with us, so we are totally in compliance.”
There isn’t necessarily anything wrong with placing a big amount through one firm, though it sometimes leads to questions.
Legislative Auditor Roger Norman said auditors are reviewing the investments as part of a routine audit for the state’s Comprehensive Annual Financial Report. He declined to comment when asked whether auditors have raised concerns about the bond purchases. “We really don’t comment” in the midst of an audit, he said.
Robert Keenan, chief executive officer for St. Bernard, said he was “not aware of what share of the state’s business we receive” and likes to think that the business the firm gets is because “we give them good, professional service.”
A state Securities Department letter told the firm that the department was conducting a review of all brokers doing business with the state and “I was reassured that we were not being singled out, as they were reviewing all brokers doing business with the state, and that the review was not as a result of any complaint,” Keenan said. “We met with them and happily gave them the information they requested.”
Heath Abshure, commissioner of the department, said it doesn’t comment on whether an investigation exists. But, he said, the department is not “conducting a review of all brokers conducting business with the state.”
“As part of our compliance examination program, we are reviewing certain transactions by broker-dealer firms that transact securities business with certain state agencies or departments,” Abshure said.
A compliance examination is akin to an audit, he said, and “we are auditing multiple firms, and looking at samples of transactions from those firms. It is inaccurate to imply that we are ‘reviewing’ every broker that conducts business with every account of every state entity.”
Gov. Mike Beebe said the share of bonds purchased through one broker “certainty raised our eyebrows.”
The treasurer’s office “is a separate constitutional office,but I am the governor, so we look at that,” he said. “I am worried about such things as ‘Are the investments diversified in a fashion that risk is minimized to the taxpayers and to the state’s budget?’ and so that was my concern.”
Beebe said he hasn’t talked with Shoffner about the matter.
Rogers, Shoffner’s interim chief deputy, said there isn’t any reason to worry about the investments. She said Morgan Keegan and Crews and Associates have traded with the treasurer’s office in amounts in excess of the $500 million-plus invested through St. Bernard over the past 12 to 18 months.
“At the time ... we felt St. Bernard offered the best proposal,” she said when asked why so much of the office’s bond investments were through St. Bernard.
But, Keenan said, the treasurer’s office investment list that shows St. Bernard at $518 million “doesn’t tell me” whether “these numbers [are] total purchases by firm, or total purchases by firm still held in the account, or total purchases and sales by firm. If it is totals still held in the account, then some firm might be doing a lot of short term transactions while other firms’ bonds are bought and held in the account for a long term.”
“If someone can decipher how much business [was] generated from this list by firm, my hat’s off to them,” he said. “Sort of like saying ‘My team’s running back rushed for 250 yards.’ Was that one game, one season, or one career?”
Keenan said that “the information we have indicates that the state distributes the business pretty evenly over any three-year period to the firms that provide them with the best service,” and “we are honored to be among that group.”
Most of the other brokers through which the treasurer’s office purchases bonds either declined to comment about the office’s purchases or could not be reached for comment. A few have privately grumbled about the purchases through St. Bernard.
But Rush Harding, chief executive officer for Crews and Associates, defended Shoffner.
As of Friday, the treasurer’s office had $160 million in bonds purchased through Crews and Associates, according to the office.
Harding said Keenan is a professional and a good man.
“If the state treasurer’s office gave him the business, I am sure they deserved it,” he said. “I’m confident they earned that business.”
Harding said Crews and Associates “feel very fortunate to do business” with the treasurer’s office.
“We are so fortunate that the treasurer’s office hasn’t lost 1 cent of taxpayer money on investments,” unlike in other states, he said. “I think the story is what a good job they have done over there.”
Front Section, Pages 1 on 10/29/2011