SEC calls out New Jersey

A discrepancy in how the state of New Jersey has been funding public workers’ pensions has made it the first state to be officially called out by the SEC. The state is accused of misleading investors while selling municipal bonds which totaled $26 billion over a six year period.

The SEC says that investors did not receive full disclosure when purchasing the bonds, because they did not understand that the state couldn’t contribute to the funds at any time. In fact, the state had to go through difficult processes, including raise taxes, to ever actually contribute to the fund. This, says the SEC, is a major factor in one’s investing decisions, and should have been disclosed to those purchasers. “The State of New Jersey didn’t give its municipal investors a fair shake, withholding and misrepresenting pertinent information about its financial situation,” Robert Khuzami, director of the S.E.C.’s enforcement.

New Jersey settled out of court. “While the state did not admit or deny the SEC’s findings in the order, it agreed not to commit or cause any future violations,” the New Jersey attorney general said. Andy Pratt, spokesman for the New Jersey Treasury, also said, “We aim to have the best disclosure of any state in the nation, and we intend to meet that goal in our bond offerings.”

Elaine Greenberg, chief of the commission’s Municipal Securities and Public Pensions Unit, said  “Issuers of municipal bonds must be held accountable when they seek to borrow the public’s money using offering documents containing false and misleading information.  New Jersey hid its financial challenges from the very people who are most concerned about the state’s financial health when investing in its future.”