The Securities and Exchange Commission has finally caught up with the Illinois Way of doing business. The law requires Illinois to fully disclose any risks to investors who buy its bonds, but it should come as no surprise that Illinois failed to do so.
Not like "failed because it forgot," but more like "failed because it lied."
This from the Los Angeles Times:
The Securities and Exchange Commission charged Illinois with securities fraud, accusing the state of misleading municipal investors over pension fund obligations, the regulatory agency said Monday.
An investigation determined the state failed to inform investors about the impact of problems with its pension funding schedule, the agency said.
Between 2005 and 2009, Illinois sold more than $2.2 billion in municipal bonds but neglected to tell investors that pension obligations were underfunded, the agency said.
“Municipal investors are no less entitled to truthful risk disclosures than other investors," said George S. Canellos, acting director of the SEC's enforcement division. "Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system.” [Emphasis added]
Illinois agreed to a settlement, but won't have to pay a fine--which, I suppose, means that investors won't get reimbursed for the screwing that it got. The SEC said the state cooperated in the investigation and began instituting remedial procedures in 2009.
So, I guess it was all a mistake. The finance folks who put together the legally required information for investors just happened to forget the billions in unfunded pensions. Sure.