The Securities and Exchange Commission on Monday charged the State of Illinois with securities fraud for allegedly misleading bond investors about pension fund obligations.
The SEC said that its investigation revealed that the state didn't properly inform investors that its pension obligations were significantly underfunded as it sold more than $2.2 billion in municipal bonds between 2005 and 2009.
According to the SEC's order, the state established a pension contribution schedule in 1994 that was insufficient to cover the actual and future obligations.
"This structure imposed significant stress on the pension systems and the state's ability to meet its competing obligations -- a condition that worsened over time," the SEC said.
Starting in 2009, the state began to take action and began to issue disclosures, the SEC said. Illinois has settled the case, in which no fees or penalties were assessed.
Regulators noted that Illinois "significantly improved disclosures in the pension section of its bond offering documents, retained disclosure counsel, and instituted written policies and procedures as well as implemented disclosure controls and training programs."
Illinois is only the second state to be charged with violating securities laws related to public pension disclosures, after New Jersey in 2010.
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