The State of New Jersey has the dubious honor of being the first U.S. state ever to be charged with violating federal securities laws, according to an article in CNNMoney by Ben Rooney, “SEC sues New Jersey for fraud.” The state agreed to settle the fraud charges on August 18, 2010, the same day they were filed by the SEC.
The alleged fraud involved bond sales totaling $26 billion over a six year period ending in April 2007. According to the SEC, New Jersey mislead bond investors through offering documents that created the false impression that the state could fund certain pension funds. In fact, the SEC said, New Jersey could not do that without raising taxes or cutting services that could impact its budget.
“The State of New Jersey didn’t give its municipal investors a fair shake, withholding and misrepresenting pertinent information about its financial situation,” Robert Khuzami, Director of the SEC’s Division of Enforcement, was quoted as saying in a statement.
While no financial penalty was imposed, New Jersey was ordered to “cease-and-desist” from further violations and ordered to improve its financial disclosures, according to the article.
Seeking to reassure potential investors, officials pointed out that New Jersey has never missed a bond payment and that the state is endeavoring to improve its disclosures. “We aim to have the best disclosure of any state in the nation, and we intend to meet that goal in our bond offerings,” said Andy Pratt, spokesman for the New Jersey Treasury. That is some pretty impressive hootspa under the circumstances.