Posted 5/20/2013 01:04 pm
Updated 10 months ago
A criminal complaint filed in federal court Monday alleges that Arkansas Treasurer Martha Shoffner accepted a $6,000 payment from a bond broker working with the FBI, which recorded the transaction and arrested her at her Newport home on Saturday.
According to the criminal complaint, the FBI interviewed Shoffner after she accepted the payment, and she admitted accepting multiple $6,000 payments. The complaint says Shoffner "knew it was wrong to accept the payment."
FBI agents arrested Shoffner Saturday for violating the Hobbs Act, a federal law that is often cited in cases of official corruption, and the criminal complaint describes he offense as "extortion under color of official right."
(View the Complaint: Click here to download a PDF of the complaint.)
Shoffner, 68, had been in Pulaski County jail since Saturday night. On Monday, she was informed of the charges against her by U.S. District Court Magistrate H. David Young of Arkansas' Eastern District.
At the brief, 10-minute hearing, Shoffner wore a black pantsuit and appeared tired. She did not enter a plea, and the court will hold a formal arraignment at a later date. Chuck Banks of Little Rock, Shoffner's attorney for the hearing, told The Associated Press that she will enter a not guilty plea at the appropriate time.
"I'm going to send her home right now. We're going to get some rest, and I will talk to her this afternoon about preparing her defense," Banks told the AP. "This has been a very, very tough proceeding for her and a tough weekend."
Shoffner, who agreed to surrender her passport, was released on her own recognizance, and U.S. Attorney Chris Thyer said his office did not consider her to be a flight risk. She told reporters outside the courthouse that will not resign.
Assistant U.S. Attorney Jana Harris represented the U.S. Attorney's Office.
The criminal complaint, a signed affadavit by FBI Special Agent Richard McLain, was released ahead of Shoffner's court appearance and alleges multiple payments to Shoffner by a broker who had done business with the Arkansas Treasurer's Office. The broker, identified in the complaint as "Confidential Human Source 1," has been working as a witness for the FBI and granted immunity from prosecution by the federal government.
At a press conference early Monday afternoon, Thyer said "it was not an easy decision" to grant immunity, but it was a necessity because "we could not be here today" if neither the broker nor Shoffner had talked.
The complaint says the broker had been paying Shoffner in exchange for Shoffner directing state business to the broker's firm.
"CHS1 assumed that his/her existing bond business was secure when he/she began paying Shoffner, but acknowledged that at the time he/she began making payments, his/her bond business increased in value substantially," the complaint says. "CHS1 recognized his/her bond business with the state grew because of the payments he/she made to Shoffner."
In the fall of 2009, Shoffner allegedly began asking the broker for larger gifts, including the purchase of a Little Rock home, which the broker declined to do. She then asked for $1,000 a month so she could rent a residence in Little Rock.
Ultimately, the broker began making a series of cash payments to Shoffner, often hidden in "a pie box purchased from a Little Rock business," the document alleges. The complaint says the broker would make a payment of $6,000 in cash to Shoffner every six months, mostly in $100 bills.
In all, the broker says he or she made at least $36,000 in payments to Shoffner. Payments were made at the state Capitol, Shoffner's Newport home and Shoffner's Little Rock apartment, the complaint says.
On Saturday, the broker, working for the FBI, arranged to meet Shoffner at her Newport home. According to the complaint, the broker was "provided technical surveillance equipment" and given "$6,000 cash in FBI official government funds." The cash was concealed in a pie box and the broker delivered it to her home.
After the broker left the house, FBI agents executed a search warrant and recovered the payment, which Shoffner had moved to a cigarette pack in her kitchen. The complaint says Shoffner told agents where she had moved the money.
Thyer explained in the press conference that Shoffner was immediately arrested on a criminal complaint, rather than waiting for a grand jury to issue an indictment, because the FBI didn't want leave its $6,000 in her possession. The alleged payoff on Saturday was the first by the broker since the grant of immunity in January.
Steve and Steele Stephens
As Arkansas Business has reported, the FBI had been investigating Shoffner for more than year, interviewing sources about her handling of campaign contributions and the operations of the state treasurer's office.
In Monday's complaint, the FBI confirmed that its investigation began in January 2012, after a cooperating source in the treasurer's office told investigators that Shoffner "was using one broker over others and was not following historical investment practices ..."
In December, the state Legislative Joint Auditing Committee voted to refer an audit of her office to state and federal authorities. Legislators questioned how Shoffner's office handled the state's billion-bond portfolio after finding that the office conducted an inordinate amount of business with two bond traders, Steve Stephens and his son, Steele.
The Division of Legislative Audit last year analyzed bond trades conducted for the State Treasurer during a 45-month period. Shoffner’s office bought and sold bonds totaling $1.69 billion through the father-son team between July 1, 2008, and March 31, 2012.
The business was conducted first through Apple Tree Investments Inc. of Little Rock, where they worked for a year (with owner Steve Keifer, who was fined $50,000 by state regulators in 2009 for fraudulent sales tactics), and through St. Bernard Financial Services Inc. of Russellville, their employer since June 2009.
The tiny firms handled nearly twice as much bond business for the State Treasurer as the closest competitor, Morgan Keegan & Co. of Memphis. Morgan Keegan is now called Raymond James Morgan Keegan since its sale last April to Raymond James Financial of St. Petersburg, Fla.
Between July 22, 2009, and Oct. 5, 2011, bond trades for the State Treasurer generated commissions totaling more than $2.3 million for Apple Tree and St. Bernard, thanks to Steve and Steele Stephens.
Some of those bond trades cost the state hundreds of thousands of dollars in reduced profits.
During testimony before the Joint Auditing Committee in December, Shoffner couldn’t explain why the trades that produced less money for the state made economic sense or why her office did so much more business with those traders.
Shoffner, a Democrat in her second term as treasurer, has also faced questions about her use of campaign funds, specifically whether she converted campaign contributions to personal income.
Gov. Mike Beebe, also a Democrat, has called for Shoffner to resign.
"I think she should resign immediately," Beebe said, adding that the details provided by prosecutors are so specific that Shoffner has been rendered unable to lead.
"It would be very hard, in my opinion, for that office to properly function under her continued leadership," he said.
Democratic Attorney General Dustin McDaniel and the leader of the state Republican Party, Doyle Webb, have also called for Shoffner's resignation.