SEC FINDS STATE OF ILLINOIS VIOLATED
SECURITIES LAWS
By Chriss Street
States Securities & Exchange Commission determined that the State of Illinois violated Federal Securities Laws by misstating the true financial health of the State’s depleted pension funds when it raised over $2.2 billion with multiple bond offerings from 2005 through early 2009.
 |
|
The State of Illinois funds five retirement systems that pay
defined-benefit pension payments upon retirement, death, or disability to
public employees and their beneficiaries. The systems include the Illinois
State Teachers’ Retirement System, State Universities Retirement System, the
State Employees’ Retirement System, Judges’ Retirement System, and the General
Assembly Retirement System. The pension plans were required by law collect
contributions from employees and employers, but the State chose to subsidize
employees by paying most of the required contributions.
In 1994 the pension plans were significantly underfunded. Rather
than requiring the immediate funding of through direct contributions, the
Illinois Legislature passed the Pension Funding Act (“Funding Plan”) to
establish a 50-year pension contribution schedule that allowed the State to
slowly increase pension contribution increases over a fifteen-year “ramp”
period, then make a large percentage annual payroll contribution each year from
2011 to 2045.
The SEC found that the State of Illinois failed to disclose to
investors “material information” regarding the continuous underfunding of their
pension systems and the resulting risks to the State’s financial solvency. The
scheme underfunded the State’s pension obligations in the early years and
back-loaded the majority of pension contributions far out into the future. The
Funding Plan also allowed the State to take “Pension Holidays” with no funding
during 2006 and 2007. The State of Illinois hid from investors the effect of
these funding changes on their ability to pay pension obligations.
In anticipation of the institution of potential civil and
criminal charges, the State of Illinois submitted an Offer of Settlement that
admitted wrongdoing and consented to an SEC “Cease-and-Desist” Order for
violating the Securities Act of 1933.
In what is a direct warning to other state and local public
pension plans; SEC Enforcement Director George S. Canellos stated: “Municipal
investors are no less entitled to truthful risk disclosures than other
investors.” Elaine Greenberg, Chief of SEC Municipal Securities and Public
Pensions Unit, added, “Regardless of the funding methodology they choose,
municipal issuers must provide accurate and complete pension disclosures
including the effects of material changes to their pension plans. Public
pension disclosure by municipal issuers continues to be a top priority of the
unit.”
Although agreeing to the securities fraud doesn’t subject the
State to any SEC fines or penalties, it provides a road-map for class-action
lawsuits against the State of Illinois for financial misdeeds. A
spokesman for Governor Quinn said Illinois has “cooperated fully” with the SEC
during its inquiry and “neither admits nor denies the findings in the
order.” Given the dubious funding level of public pension plans in states
like California, politicians and public pension executives better start
“lawyering-up”.
CHRISS STREET & PAUL PRESTON
Present
“The American Exceptionalism Radio Talk Show”
Streaming Live Monday through Friday at 7-10 PM
Blogs: www.chrissstreetandcompany.com & www.agenda21radio.com
Click here to listen: http://www.ustream.tv/channel/american-eceptionalism-news
Present
“The American Exceptionalism Radio Talk Show”
Streaming Live Monday through Friday at 7-10 PM
Blogs: www.chrissstreetandcompany.com & www.agenda21radio.com
Click here to listen: http://www.ustream.tv/channel/american-eceptionalism-news
No comments:
Post a Comment