Kansas Settles SEC Charges Over Allegations it Misled Investors about Risks in Muni Bond Offerings Totaling $273 Million

The U.S. State of Kansas has agreed to settle U.S. Securities and Exchange Commission fraud charges accusing it of failing to disclose in offering documents that the Kansas Public Employees Retirement System (KPERS), its pension system, was very underfunded. The regulator says that this established a repayment risk for bond investors. At issue were eight bond offerings valued collectively at $273 million.

According to the regulator’s order, the bond offers were issued via the Kansas Development Finance Authority (KDFA). Not only did the bond offering documents purportedly fail to disclose KPERS’ unfunded liability but also the paperwork did not describe what effect this could have on payments. The SEC said these poor disclosures stemmed from inadequate communications and procedures between KDFA and the state’s Department of Administration, which let the former know what data should have gone into the offering materials.

As a result, said the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit chief LeeAnn Ghazil Gaunt, Kansas gave investors were given an “incomplete” picture of the state’s finances and its potential ability to pay back the bonds (because of other stresses on its budget). The state has since put into place new procedures and policies to make sure that the appropriate disclosures about pension liabilities are disclosed in offering documents.

Kansas settled the SEC charges without denying or admitting to the findings. The state also agreed to cease and desist from future violations of certain sections of the Securities Act of 1933. No fine was involved.

The SEC has been assessing muni bond disclosures nationwide. Previously, it sanctioned New Jersey for not disclosing to investors that two of its biggest pension plans were underfunded. Last year, the regulator charged Illinois for misleading pension disclosures.

Our municipal bond fraud lawyers represent institutional clients and high net worth individual investors. Contact The SSEK Partners Group today.

SEC Charges Kansas for Understating Municipal Bond Exposure to Unfunded Pension Liability, SEC.gov, August 11, 2014

Read the SEC Order (PDF)

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