The SEC has charged the State of Illinois with securities fraud for misleading municipal bond investors between 2005 and early 2009. According to the SEC, Illinois failed to disclose the impact of structural underfunding of its pension system in connection with the offer and sale of more than $2.2 billion worth of municipal bonds. The underfunding resulted in an increased risk to the state’s overall financial condition. Illinois agreed to settle the SEC’s charges.
According to the SEC, Illinois enacted a 50-year pension contribution schedule in 1994 that pushed most of the contributions far into the future. That proved to be insufficient to cover accrued benefits and the amortization of the plans’ unfunded actuarial liability.
The SEC also found that Illinois misled investors about the impact of so-called “pension holidays.” Although the pension holidays were disclosed to investors, the deleterious impact on the ability to meet pension obligations was not disclosed.
The case marks the second time in history that federal authorities accused a State of securities fraud, according to Mary Williams Walsh’s article entitled “SEC says Illinois misled investors.”
The SEC warned that public pension disclosure by municipal issuers is a top priority of the SEC’s Municipal Securities and Public Pensions Unit.
Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.