SEC Charges Illinois for Misleading Pension Disclosures (with Lofchie Comment)

The SEC charged the State of Illinois with securities fraud for misleading municipal bond investors about the state's approach to funding its pension obligations. According to the SEC, Illinois took multiple steps beginning in 2009 to correct process deficiencies and enhance its pension disclosures. The state issued significantly improved disclosures in the pension section of its bonds offering documents, retained disclosure counsel, and instituted written policies and procedures as well as implemented disclosure controls and training programs. The state designated a disclosure committee to assemble and evaluate pension disclosures. In reaching a settlement, the Commission considered these and other remedial acts by Illinois and its cooperation with SEC staff during the investigation. Without admitting or denying the findings, Illinois consented to the SEC's order to cease and desist from committing or causing any violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

Much of the discussion in the release concerns not the alleged violation, but the fact that the Illinois' pension plans are so underfunded - according to the release underfunded by $83 billion dollars as of 2011.

Lofchie Comment: This is a significant case that has implications even beyond its materiality in the securities markets. Will muncipalities be required to make disclosures along the lines suggested by the SEC release? Will disclosure of the type suggested by the SEC release make it more difficult for governmental entities to obtain funding?

View Order in full here (links externally to SEC website).See also: Press Release.