The Securities and Exchange Commission recently charged the State of Illinois with securities fraud, claiming that the state misled municipal bond investors about how the state funded its pension liabilities.

It is being reported that the SEC filed an order instituting cease-and-desist proceedings against the state, stating that it raised more than $2.2 billion from 2005 to early 2009 in a series of bond offerings. According to the SEC Order, investors in those offerings were not made aware of Illinois’ underfunded pension plans and the risks that this underfunding had on the state’s financial condition.

According to these same reports, the state agreed to settle the charges without admitting or denying the findings.

The SEC’s complaint alleged that Illinois’ pension system was underfunded by $83 billion in 2011, with assets in the system covering only 43% of its liabilities.

The SEC further alleged that in 1995, the Illinois General Assembly put into effect a statutory funding plan to try to improve the pension systems’ funding status. The goal was to reach a 90%-funded ratio by 2045. But rather than immediately funding plan contributions, state legislators gradually increased them over a 15-year-period.

That contribution schedule set back the state in closing its liability gap and pushed the burden of covering those pension expenses into the future. It didn’t help that there were two years — 2006 and 2007 — in which the legislature cut those contributions and did not compensate for those cuts with funding increases in subsequent years.

The state provides funding for five defined-benefit pension plans: The Teachers’ Retirement System, the State Universities Retirement System, the State Employees’ Retirement System, the Judges’ Retirement System and the General Assembly Retirement System.

This isn’t the first time the SEC has charged a state for fraudulent muni bond offerings. Three years ago, the SEC filed similar charges against New Jersey for failure to disclose to investors that it was underfunding two of the state’s biggest pension plans.

The foregoing information, which is publicly available, is being provided by The White Law Group.  The White Law Group is a national securities fraud, securities arbitration, and investor protection law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group visit https://whitesecuritieslaw.com.  To speak with a securities attorney, please call the firm’s Chicago office at 312/238-9650.