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NJ Settles SEC Fraud Charges Over Bond Sales

Wednesday, 18 Aug 2010 03:12 PM

The state of New Jersey has settled federal civil fraud charges of failing to inform bond investors that it had not met obligations to its largest pension plans, federal regulators said Wednesday.

In announcing the settlement, the Securities and Exchange Commission said New Jersey did not give municipal bond investors enough information to fully assess the state's financial picture.

New Jersey was the first state ever charged for violations of the securities laws. New Jersey neither admitted nor denied the allegations. It did agree to refrain from future violations of the securities laws.

No financial penalty was levied against the state. The SEC said it took into account state authorities' cooperation in its investigation and action taken by the state to correct the situation.

The case marked the latest action by the SEC touching on the $2.7 trillion bond market, used to finance schools, roads and hospitals around the country. Retail investors increasingly participate in the market, seeking safe investments with reliable returns. At the same time, crises in several municipalities have underscored the importance of the municipal bond market.

The SEC had charged that New Jersey sold more than $26 billion in municipal bonds between 2001 and 2007 to raise money for economic development projects, such as roads and power lines. But the bond sale documents didn't disclose that the state had failed to meet its financial obligations to two state employee pension funds. New Jersey likely couldn't contribute to the pension funds without raising taxes or cutting services, the SEC said.

As a result, investors in New Jersey's bonds lacked sufficient information to assess the state's financial status, the SEC said.

"All issuers of municipal securities, including states, are obligated to provide investors with the information necessary to evaluate material risks," Robert Khuzami, the SEC's enforcement director, said in a statement. "The state of New Jersey didn't give its municipal investors a fair shake, withholding and misrepresenting pertinent information about its financial situation."

The SEC last year proposed requiring brokers in municipal bonds to make fuller and more timely disclosures to investors.

Many states around the country have been unable to fully fund their public employee pension plans in the financial crisis.

"It is an area of concern," Elaine Greenberg, chief of the SEC's municipal securities and public pensions unit, said in a telephone interview. "We want to make sure that states and municipalities are adequately disclosing" their pension fund liabilities, she said.

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The state of New Jersey has settled federal civil fraud charges of failing to inform bond investors that it had not met obligations to its largest pension plans, federal regulators said Wednesday.In announcing the settlement, the Securities and Exchange Commission said New...
US,SEC,New,Jersey,Muni,Bonds
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2010-12-18
Wednesday, 18 Aug 2010 03:12 PM
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