(Adds comment from Corzine spokesman, background)
NEW YORK Aug 18 U.S. regulators said on
Wednesday they charged New Jersey with securities fraud for not
disclosing to municipal bond investors that it was underfunding
New Jersey, the first state ever hit with securities fraud
charges by the Securities and Exchange Commission, agreed to
settle the case without admitting or denying the findings, the
SEC said. The state was not required to pay any civil fines or
penalties, but ordered to cease and desist from future
New Jersey offered and sold more than $26 billion of
municipal bonds in 79 deals between August, 2001 and April,
2007, according to the SEC.
The offering documents "created the false impression that
the Teachers' Pension and Annuity Fund (TPAF) and the Public
Employees' Retirement System (PERS) were being adequately
funded, masking the fact that New Jersey was unable to make
contributions to TPAF and PERS without raising taxes, cutting
other services or otherwise affecting its budget," the SEC
"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 SEC's Division of Enforcement, said in
In a joint statement with the New Jersey attorney general's
office, Andrew Pratt, a spokesman for the state treasury which
oversees the $68 billion state pension fund, said the state has
never missed a bond payment.
"The state aims to have the best financial disclosure in
the nation and we will continue to strive to achieve that
goal," Pratt said.
Some of the debt was sold while former Governor Jon Corzine
ran the state. Corzine, a Democrat, one-time chief executive
officer at Goldman Sachs Group (GS.N) and current MF Global
Holdings Ltd CEO, ran the state from 2006 until losing a
reelection bid to Republican Chris Christie last year.
Corzine spokesman Josh Zeitz said Corzine had worked to
shore up the system that had been badly neglected for years.
"He put more state money into the public pension fund
during his one term than all of his predecessors over 15 years
did combined," said Zeitz.
Meanwhile, Christie skipped a scheduled $3.1 billion
payment into the state's pension fund for the current fiscal
year that began July 1.
Christie, seeking to close a $10.7 billion budget
shortfall, said the state should not make further payments into
a system that paid retirees too generously. He has promised to
propose pension reforms in the fall.
New Jersey is the third most indebted state, after
California and New York, according to Moody's Investors
Service's 2010 State Debt Medians Report, which is based on
2009 data. It is one of many states grappling with big pension
The charges against New Jersey came as municipal regulators
stepped up efforts to ensure issuers in the $2.8 trillion
municipal market were meeting disclosure requirements.
U.S. states face a total shortfall of at least $1 trillion
in their funds for employees' pensions and retirement benefits,
according to a report released by the Pew Center on the States
in February. The report found that states did not save for the
future or manage costs well, but they also typically expect an
8 percent return on investments.
Given the state of the stock market, many pension funds and
governments found their investment returns have grown slimmer
in recent years and they have had to put in more money to cover
The state's bonds were issued before 2007, when regulators
began requiring that the opaque municipal bond market provide
investors with more information about the debt being sold. SEC
chairwoman Mary Schapiro has said she wants muni buyers to have
the same protections as corporate investors.
The Municipal Securities Rulemaking Board has created the
central repository known as EMMA, where investors can access
information about the bonds for free instead of following the
previous path of having private repositories mail them copies
of documents for fees.
It has also shortened the amount of time disclosures can be
made and begun requiring more detailed information.
(Reporting by Karen Pierog in Chicago and Edith Honan in New
York, additional reporting by Lisa Lambert in Washington and
Jon Hurdle in Philadelphia; Editing by Chizu Nomiyama)