Goldman Sachs ex former NJ Gov. Corzine sticks people with $26 billion bill, hid public sector info, SEC eyes other states for same

• 8/18, "New Jersey settles SEC fraud claims over $26 billion in bonds," Bloomberg News, by D. McNichol

"New Jersey settled claims that it misled investors in $26 billion of municipal bonds by masking underfunding of its two biggest pension plans, in

• the first Securities and Exchange Commission case to target a state.

Documents for 79 bond offerings from 2001 to 2007 “created the false impression”

• that the Teachers’ Pension and Annuity Fund and the Public Employees’ Retirement System were adequately funded,
  

• hiding that the state couldn’t make contributions without raising taxes or cutting services, the SEC said in a statement today....

The suit marks the first time the SEC has sued a state for violating federal securities laws and marks an early salvo in the agency’s plan to crack down on fraudulent practices

• in the $2.8 trillion municipal bond market.

The case is a harbinger of further action against states and municipalities, said Steve Scholes, a former SEC enforcement attorney who now heads the group at McDermott Will & Emery LLP that defends cases before the commission.

More to Come’

“The only thing we can conclude here is that there is certainly more to come,” said Scholes, who is based in Chicago.

• “The market is mammoth. It has been growing over time and has really never been subject to any sort of significant, comprehensive SEC scrutiny in the past as it is undergoing today.”

New Jersey agreed to settle the SEC case without admitting or denying the agency’s findings. The state consented to a cease-and-desist order, and wasn’t required to pay any civil fines or penalties....

• New Jersey is the third-most-indebted state in the U.S., behind California and New York,
  

with $37.7 billion in gross tax- supported debt outstanding, according to the Moody’s Investors Service 2010 State Debt Medians report. Its $66.9 billion pension system, which included seven funds, was

• underfunded by $46 billion as of June 30, 2009.
  

Nationwide, state pension systems were underfunded by at least $500 billion in 2008, according to the Pew Center on the States.

Three-Year Inquiry

New Jersey bonds such as a $2.8 billion Transportation Trust Fund Authority issue from 2006 rose in price after news of the SEC settlement, according to data compiled by Bloomberg.

• Investors paid an average of $117.84 today for bonds from that deal maturing in 2022, for a yield of 3.46 percent, according to the Bloomberg data. That compares with a price of about $115 and a yield of 3.74 percent when the issue last changed hands Aug. 6. The bond originally sold at about $108 in May 2006....

The SEC review began in 2007 after the New York Times published a critical review of the state’s pension accounting. The agency found

• the state masked years of pension underfunding by failing to inform investors that $704 million listed as pension payments in bond documents were actually transfers of money already in the pension system.
  

• The state also failed to disclose a $2.4 billion loss in the value of pension fund assets in 2001, the SEC said.

Retirement Benefits

The commission found that the state didn’t adequately disclose information related to legislation adopted in 2001 that

• increased retirement benefits for public employees and retirees, according to the order....

Making Bond Payments

“New Jersey has never failed to make a bond payment,” Andrew Pratt, a spokesman for state Treasurer Andrew Sidamon- Eristoff, said in a telephone interview today. “We aim to have the best possible disclosure.”

• Sidamon-Eristoff was appointed by New Jersey Governor Chris Christie, the first Republican elected governor of New Jersey since 1997.

John McCormac, who was treasurer from 2002 to 2006 under Democratic governors James McGreevey and Richard Codey, declined to comment when reached by telephone today and said he hadn’t seen the SEC action. McCormac, who served on Christie’s transition team, is currently mayor of Woodbridge township.

• New Jersey is preparing to sell $2.25 billion in tax-and- revenue anticipation notes tomorrow to raise funds for the current state budget.
  
• Standard & Poor’s gave the debt its highest short-term rating.
  

The firm said its rank of AA, the third-highest investment grade, for New Jersey’s general obligation debt reflects the strength of the state’s economy and its high wealth and income levels, though it has concerns about the unfunded pension liability.

• The note sale is set to proceed as scheduled, Pratt said.

“The settlement of this longstanding issue should be viewed, we believe, as a positive for bondholders,” he said."

• via Save Jersey blog