SEC Charges Illinois With Securities Fraud
By Chuck Sudo in News on Mar 11, 2013 6:00PM
Illinois’ pension problem is so bad the state government has now been charged with securities fraud by the Securities and Exchange Commission. The charges result from the sale of $2.2 billion in municipal bonds between 2005 and 2009, in which the state allegedly misled investors about the extent of the underfunded pensions and the risks to Illinois’ already shaky financial condition.
Illinois’ current underfunded pension obligations total $96 billion. Last week, Gov. Pat Quinn introduced a $35.6 billion Fiscal Year 2014 budget that called for deep cuts in education funding and nearly $929 million in revenue — 19 percent of the budget — earmarked to covering pension costs. Quinn and his aides made it a point to note the “balanced, honest and difficult” budget was a result of the General Assembly’s unwillingness to tackle the pension issue in a responsible manner. Illinois House Speaker Michael Madigan and other lawmakers proposed a series of pension reform bills recently. Almost all of them were sure to face a legal challenge if they had a chance to become law; they were all voted down. Illinois Federation of Teachers President Dan Montgomery called one bill proposed by Reps. Elaine Nekritz and Tom Cross that would gut the savings plans of its members “unfair, unconstitutional and unproductive.”
Illinois implemented a series of remedial actions and corrective disclosures to bond filings shortly after Quinn took office in 2009 and agreed to settle the SEC’s charges. Abdon Pallasch, Quinn’s assistant budget director, said the state “neither admits nor denies the findings in the order, which carries no fines or penalties.”
The SEC’s Acting Director of their Enforcement Division, George S. Canellos, said in a statement:
“Municipal investors are no less entitled to truthful risk disclosures than other investors. 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.”
Illinois becomes the second state to be charged by the SEC. New Jersey was charged in 2010 in a similar shceme.