SEC Charges the State of Kansas with Understating Municipal Bond Exposure to Unfunded Pension Liability (with Lofchie Comment and YouTube Selection)

The SEC announced securities fraud charges against the State of Kansas stemming from a nationwide review of bond offering documents. The review was undertaken to determine whether municipalities were properly disclosing material pension liabilities and other risks to investors.

According to the SEC order, the Kansas Development Finance Authority ("KDFA") did not properly disclose the existence of "significant" unfunded liability in the Kansas Public Employees Retirement System when it issued a series of bond offerings. Additionally, the documents did not describe the effect of such an unfunded liability on the risk of non-appropriation of debt service payments by the Kansas Legislature.

The SEC found that the failure to disclose this material resulted from poor communication between the KDFA and the Kansas Department of Administration and from insufficient procedures.

Lofchie Comment: The phenomenon of an SEC nationwide review of, and enforcement actions against, governmental entities provokes many questions. In the various local government actions brought during the past year, there have not been any charges brought against individuals (although such charges seem a future possibility). Could false or misleading statements, including those made outside of written offering documents, by appointed or elected officials lead to personal liability? Will the SEC disclose the scope of its review (or at least the number of entities and dates covered by the review)? How many of the municipalities that it reviewed had faulty disclosure?

Lofchie YouTube Selection: We're Not in Kansas Anymore.

See:SEC Order.