Last week New Jersey became the first state EVER accused by the SEC of violating federal securities laws, Between 2001 and 2007 , it failed to tell investors ( bond buyers ) that it was underfunding its pension funds. In 79 bond issues totalling more than $26 billion : " The Treasurers did not read official statements ... relied on staff to ensure accuracy ... had no policies or procedures for review or update of bond prospecti." It was only after a N.Y. Times article reporting the diversion of billions from various pension funds that N.J. updated its disclosures. AFTER $26 billion in bonds had been sold.
N.J. settled the allegations by neither admitting nor denying the allegations but promising not to do it again.
The SEC would not say if other enforcement actions are pending against other states but most observers think there are.
While seemingly a slap on the wrist , and even less than that, it is important to note that N.J. was NOT able to blame this on bankers , brokers, lawyers or advisors. It is key to recall that back in 1975 N.Y.C. was no longer able to sell short term bonds because NOBODY on Wall Street was willing to underwrite them. Nobody wanted to be subject to investor lawsuits when, not if, when those bonds went into default. Look for that to start happening with California, N.Y. and other state bonds.



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