by Max Brantley
Speaking of former Treasurer Martha Shoffner, accused of taking kickbacks for steering huge sums of state bond business to the broker making the payments:
Here's another former state treasurer ensnared in a public corruption case, Tim Cahill of Massachusetts. He agreed to pay $100,000 and admitted he should have known a lottery advertising campaign he authorized (while running for governor) was illegal. The lottery ads touted his management of the enterprise. That was in March.
Today came news closer to the Arkansas situation from Bloomberg.
A former Goldman Sachs Group Inc. (GS) investment banker will pay $100,000 to resolve U.S. regulatory claims that he made improper contributions to a Massachusetts treasurer while seeking state underwriting business.
Neil Morrison, who worked on then-Treasurer Tim Cahill’s unsuccessful run for governor from November 2008 to October 2010 while he was employed by Goldman Sachs, also agreed to be barred from the securities industry for five years, the Securities and Exchange Commission said in a statement today.
The immunity from federal prosecution given an Arkansas broker who said he made cash payments to Shoffner likely doesn't end his entanglement with other agencies. Our sources have said Steele Stephens of Little Rock (no relation to the Stephens Inc. investment empire), who resigned this week as a salesman for St. Bernard Financial Services, was the key informant for the feds. We first reported in October 2011 a sharp increase in his share of state bond business, a development current and former employees linked to his friendship with Shoffner.
By the way: David Smith of the Arkansas Democrat-Gazette wrote a great story this morning (subscription reqd.) on the shifting policies of Shoffner's bond investments. He had some welcome perspective on the difficulties of drawing hard conclusions — as the politically motivated audit did — about the wisdom of some of the bond trading. Auditors were readily able to see — with the clarity of hindsight — that interest rates didn't perform as traders expected in liquidating a state bond position (at a healthy gain) and putting the money in a higher yielding bond that got called because interest rates continued to drop. It includes, too, the historical shift from CDs, now paying next-to-nothing, to bond investments and then shifts from committing to bond purchases for fixed periods to riskier trading. Even then, the risks weren't nearly that taken by large state retirement accounts, which can hold investments for longer periods and endure greater risks for higher returns.
This was one of several dubious comparisons by Legislative Audit — thrown up on a huge TV screen at the time for effect — that tarred its findings. Even if the trading was bad judgment — and that's a fair question to study as office procedures are examined — it wasn't evidence of illegality. The driving question always was whether that big shift in business to one broker, even if he'd made profitable call after profitable call, had an unsavory explanation. That turned out to be true. Much as legislators might wish the FBI would throw out subpoenas and search warrants based on suspicion, probable cause is necessary. It took 18 months, but that finally arrived with a taped phone call May 9 in which Shoffner allegedly asked her bond salesman to buy her some property and then, May 18, a cash-filled pie delivery under the watchful surveillance equipment of the FBI.
It's lost to the ages, but the brokers defended their trading several times. Here. And more specifically here. Of course, even a thoroughly superior investment record is no justification for winning business by illegal means.