Illinois settles SEC fraud charge over pensions
SPRINGFIELD, Ill. (AP) — Federal authorities announced Monday that Illinois has agreed to settle a securities-fraud charge that accused the state of misleading investors about the financial health of its public-employee pension systems, which are now $96.7 billion short of what's needed to cover promised retirement benefits.
In a cease-and-desist order issued by the Securities and Exchange Commissions, Gov. Pat Quinn's administration admitted no wrongdoing in the way state officials borrowed money to pay pension obligations through $2.2 billion in municipal bond sales from 2005 to early 2009.
The SEC began its investigation in September 2010, shortly after signing an agreement with New Jersey over similar pension disclosures. Quinn's assistant budget director, Abdon Pallasch, said the governor began making changes before the investigation started and that the SEC agreed his office cooperated fully in its review. Quinn, a Democrat, took office in January 2009.
The charge revolves around how well Illinois officials publicized their handling of seriously underfunded public-employee pension accounts. Quinn and the Legislature say they have made finding a solution this spring their priority.
The SEC alleged that the state made misleading statements about how much pension reforms would save or that it omitted statements about the full impact of underfunding problems.
"The state failed to disclose the effect of its unfunded pension systems on the state's ability to manage other (spending) obligations," the SEC order said. "The state also did not inform investors that rising pension costs could continue to affect its ability to satisfy its commitments in the future."
The SEC reported that Illinois has taken several steps to improve the situation, including using attorneys devoted to disclosure, expanding exposition in the pension section of bond-sale documents, and establishing formal disclosure procedures, including review of proposed explanations by the five pension agencies that administer the retirement programs.
"The (SEC) order acknowledged the proactive steps taken by the state to enhance its pension disclosures and related processes since 2009," Pallasch said in a statement. "The state began these enhancements prior to being contacted by the SEC."
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