Securities Law Blog

The State of New Jersey agreed to settle claims of securities fraud filed by the Securities and Exchange Commission (SEC). In the first ever SEC order against a state for violations of the federal securities laws, New Jersey was charged with misrepresenting and failing to disclose to investors in municipal bond offerings that it was underfunding the state’s two largest pension plans.

The SEC alleges that the state misled investors to believe it was adequately funding the $34 billion Teachers’ Pension and Annuity Fund (TPAF) and the $28 billion Public Employees’ Retirement System (PERS). From August 2001 through August 2007, New Jersey allegedly sold more than $26 billion worth of municipal bonds in 79 offerings that helped mask the truth about New Jersey’s pension contributions.

The SEC’s order found that New Jersey made material misrepresentations and omissions about the underfunding of TPAF and PERS in preliminary official statements, official statements, and continuing disclosures. New Jersey allegedly misrepresented or omitted information regarding legislation adopted in 2001 that impacted the benefits employees and retirees enrolled in TPAF and PERS, as well as the state’s use of Benefit Enhancement Funds as part of a five year plan to begin making contributions to the pension funds.

According to the SEC findings, New Jersey was aware of the underfunding and its potential effects. The state allegedly had no written policies about the review of bond offering documents, nor did it provide training to its employees about the state’s disclosure obligations.

New Jersey has neither admitted nor denied the SEC’s findings, and is required to cease and desist from committing any violations or future violations.