US regulator charges State of Illinois with securities fraud

The US Securities and Exchange Commission (SEC) has accused the State of Illinois of having misled investors over the condition of its public pension system from 2005 to 2009.

This is the second time that the SEC has charged a state with violating federal securities laws in their public pension disclosures. Earlier in 2010, the SEC had charged New Jersey with misleading municipal bond investors about its underfunding of the state's two largest pension plans.

An SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009.

The securities regulator charged that Illinois failed to disclose that its statutory plan significantly underfunded the state's pension obligations and increased the risk to its overall financial condition.

The state also misled investors about the effect of changes to its statutory plan.

Illinois neither admitted nor denied the charges and was not ordered to pay a penalty, but agreed to settle the SEC's charges after having implemented a number of remedial actions and issued corrective disclosures beginning in 2009.