The Securities and Exchange Commission on Monday charged the state of Illinois with securities fraud for misleading municipal bond investors about the state’s approach to funding its pension obligations.
An SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009.
“Illinois failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition,” the SEC says. “The state also misled investors about the effect of changes to its statutory plan.”
Illinois, which the SEC says implemented a number of remedial actions and issued corrective disclosures beginning in 2009, agreed to settle the SEC’s charges.
“Municipal investors are no less entitled to truthful risk disclosures than other investors,” said George Canellos, acting director of the SEC’s Division of Enforcement, in a statement. “Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system.”
The enforcement action against Illinois is the second time that the SEC has charged a state with violating federal securities laws in public pension disclosures. The SEC charged New Jersey in 2010 with misleading municipal bond investors about its underfunding of the state’s two largest pension plans.