S.E.C. Accuses New Jersey of Pension Fraud

In the first action by the Securities and Exchange Commission against a state for mishandling a pension fund, the federal agency claims New Jersey  led workers to believe their pensions were being properly funded when in fact they were not.

According to the New York Times, the commission issued a cease-and-desist order.  No penalties were imposed, but New Jersey reportedly accepted the order without admitting or denying the accusations.  The order did not specifically name individual state officials or bond underwriters.  The Times reports that the largest bond underwriters for New Jersey during the period in question included Citicorp, J.P. Morgan Securities, Morgan Stanley, Bank of America, Merrill Lynch, Goldman Sachs and Barclays Capital. From 2001 to 2007, the commission says New Jersey claimed it had established a "benefit enhancement fund" to pay teachers and state employees' benefits when in fact the fund was an accounting illusion and those funds did not really exist.

In an attempt to play a greater role in monitoring municipal securities, the SEC has had a special unit investigating pension disclosures since the start of this year.  The commission reportedly is seeking to discourage other government entities from disguising bad financial news in a cloud of pension figures.

Source:

The New York Times