New Jersey became the first state ever charged by the SEC
for violations of the federal securities laws. They gave up without a fight and
agreed to settle the case, without admitting or denying the SEC's findings.
This matter involves the sale of over $26 billion in
municipal bonds from August 2001 through April 2007. In 79 municipal bond
offerings, the State misrepresented and failed to disclose material information
regarding its under funding of New Jersey's two largest pension plans, the
Teachers' Pension and Annuity Fund and the Public Employees' Retirement System.
Among New Jersey's material misrepresentations and omissions:
This case is a clear warning sign for states and cities
that are running into retirement funding problems. You need to disclose those
problems in the bond offering.
An interesting note is that the State Treasurer signed a
10b-5 certification that the official statement did not contain any material
misrepresentations or omissions. The Treasurer was not charged.
The SEC only brings civil charges, so we don't get to see
Robert Khuzami driving up the New Jersey Turnpike trying to slap handcuffs on
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
See also The Securities & Exchange Commission’s First Action Against a State by Thomas Gorman