SEC 'Pushes the Envelope' with Latest State Probe.

The SEC lacks authority to require issuers to disclose financial information before selling debt in the muni-market;  but it's going after state officials over statements that may violate anti-fraud laws. That's why Illinois officials currently are under investigation for statements about the state's underfunded pension fund.  It's underfunded by $136 billion, even though recent legislation was passed to help shore up the retirement system.  In any case, a spokesperson said the state's public statement is complete and accurate, and that Illinois will cooperate fully. 

    "Worst Among the States."   Was Illinois taking future savings and treating them as current reductions in the cost of the pension fund?   Why did Illinois raise the retirement age for newly hired Illinois workers?  Illinois's pension system is only about 50% funded with liabilities at $136 billion, according to Moody's.  The underfunding, one of the worst among states in the nation, is partly the result of the state frequently skipping its recommended contributions to fund. 

    SEC's Latest State Inquiry.   Illinois  was informed by the SEC of the inquiry in September.  The inquiry is the latest example of the SEC probing a state's financial disclosures related to pensions. In August, the federal agency accused New Jersey of failing to properly disclose the true health of its 2o largest pension funds.  New Jersey authorities settled the SEC case without admitting or denying wrongdoing.

In October, the agency said that four former San Diego officials agreed to pay penalties for allegedly misleading investors in $262 million of the city's municipal bonds.  The agency said the civil settlement marked the first time it had secured financial penalties against city officials in a muni-bond fraud case.

This sounds like it will be a recurring story.  [WSJournal, 1/25]