Without denying or admitting to the charges, the state of Illinois has settled the securities fraud case filed against it by the SEC. The Commission contends that Illinois misled investors about municipal bonds and the way it funds its pension obligations. There will be no fine imposed on the state. Illinois, has, however, implemented numerous remedial actions and put forth corrective disclosures related to the charges over the last few years.
Per the Commission, even as the state offered and sold over $2.2 billion of municipal bonds between 2005 and 2009, it did not tell investors the effect problems with its pension funding schedule might have. Illinois is also accused of not disclosing that it had underfunded its pension obligations, which upped the risk of its overall financial condition.
The regulator’s order contends that Illinois had set up a 50-year pension contribution schedule in the Illinois Pension Funding Act. However, it turns out that the schedule was not sufficient to take care of both a payment amortizing the plans’ actuarial liability, which was unfunded, and the price of benefits accrued during a current year. Also, the statutory plan ended up structurally underfunding the state’s pension duties while backloading most pension contributions into the future. The structure caused stress on both the pension systems and Illinois’s ability to fulfill its competing obligations.
The SEC also claims that Illinois misled investors about the impact modifications to its funding plan might have. Even though the latter disclosed certain legislative amendments, it failed to reveal how these changes might affect the contribution schedule and whether or not it would be able to meet its pension obligations. Such misleading disclosures, says the SEC, was a result of different institutional failures.
The Commission believes that the state did not have the correct mechanisms in place that could identify and assess key information about its pension systems into disclosures while failing to properly train staff working with the disclosure process or hire disclosure counsel.
Among the steps the state took to remedy process deficiencies and improve its pension closures:
• Putting out dramatically better disclosure in its bond offering documents’ pension section.
• Appointing a disclosure committee to put together and assess pension disclosures.
• Hiring disclosure counsel.
• Putting out written procedures and policies.
• Putting into place disclosure controls.
• Setting up training programs.
The state has agreed to the SEC’s order to cease and desist from making or causing violations involving the Securities Act of 1933’s Sections 17(a)(2) and 17(a)(3).
Our securities fraud lawyers represent institutional and investment clients throughout the US. Your first case evaluation is free. Clients do not pay legal fees unless financial recovery is made and any payment would come from the compensation received.
SEC Charges Illinois for Misleading Pension Disclosures, SEC.gov, March 11, 2013
Read the SEC Order (PDF)
Securities Act of 1933 (PDF)
More Blog Posts:
Two Oppenheimer Investment Advisers Settle for Over $2.8M SEC Fraud Charges Over Private Equity Fund, Institutional Investor Securities Blog, March 14, 2013
Private Fund Advisers Have Fiduciary Duty to Client Funds, Says SEC’s Di Florio, Institutional Investor Securities Blog, May 10, 2012
AARP, Investment Adviser Association, Among Groups Asking the SEC to Make Brokers Abide by 1940 Investment Advisers Act’s Fiduciary Duty, Stockbroker Fraud Blog, April 14, 2012