Illinois agreed on Monday to settle federal civil securities fraud charges alleging the state misled municipal bond investors about how it funded its pension fund obligations.
Illinois was not ordered to pay a penalty under the terms of the settlement with the U.S. Securities and Exchange Commission. However, the state implemented a number of remedial actions beginning in 2009 and cooperated with the SEC’s probe. It settled the case without admitting to or denying the SEC’s charges.
The case marks the second time the SEC has charged a state in connection with public pension disclosure failures. The SEC had previously charged New Jersey in 2010.
According to the SEC, Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009. The SEC also said Illinois failed to disclose that it had underfunded the state’s pension obligations, increasing the risk to its overall financial condition.
Illinois has one of the worst-funded pension systems in the country. Governor Pat Quinn and the state legislature are currently locked in a political battle as to how best to fix an unfunded liability of $96.8 billion – a gap so large, it has led Illinois to have the worst credit rating among U.S. states.