One can expect to read of more suits like this, against sundry state and local governments that have issued bonds –
The Securities and Exchange Commission, in its first securities-fraud case against a state, accused New Jersey of misleading investors about the health of its two largest state pensions while selling billions of dollars in bonds.
New Jersey settled SEC charges that the state misled investors about the health of its two largest pensions while issuing billions of dollars in bonds. Peter Landers, David Weidner and David Reilly discuss. Also, Stephanie Banchero discusses a new company that allows students to bet for (or against) their grades.
State authorities settled the case without admitting or denying wrongdoing.While it singled out New Jersey, the SEC is conducting several investigations into what other states disclosed about their weakened finances.
States ranging from California to Illinois to New York have been thrown into financial difficulty by the economy but have been able to avoid disaster by selling bonds to investors, many of them individuals seeking safe, tax-free income.
States as a whole face a trillion-dollar gap between the pensions, health care and other retirement benefits they have promised to public employees, and the money set aside to pay the benefits, according to a report by the Pew Center on the States.
The SEC said it is concerned about how these problems are disclosed to investors.
“We want to make sure that states or municipalities who go out and raise money from the public are adequately disclosing all material information in connection with their pension liabilities,” said Elaine Greenberg, head of the SEC’s municipal securities and public pension unit, which was created in January.
In the New Jersey action, the SEC cited municipal bonds in 79 separate offerings totaling $26 billion from 2001 to 2007. Many of those sales occurred after the SEC said the state abandoned a plan to bring pension funding up to snuff.
The SEC’s filing in the civil case described a series of moves that it alleged misled investors into believing the state was adequately funding the $34 billion Teachers’ Pension and Annuity Fund and the $28 billion Public Employees’ Retirement System.