SEC Charges Illinois With Fraud Over Pensions

For only the second time ever, the Securities and Exchange Commission is charging a state with fraud, for allegedly misleading investors about the health of its pension funds. The SEC says the state of Illinois did not properly inform investors that its pension funds were significantly underfunded when selling bonds from 2005 to 2009. This is the latest fiscal black eye for a state with a pension shortfall approaching a whopping $100 billion. The state has agreed to settle the charges.

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For only the second time ever, the Securities and Exchange Commission is charging a state with securities fraud. The SEC says Illinois misled investors about the true health of its pension funds, which now have a shortfall of nearly $100 billion. NPR's David Schaper reports.

DAVID SCHAPER, BYLINE: For decades, Illinois's governors and state lawmakers have failed to put enough money into the pension funds for state workers, university employees, teachers, judges, and even themselves. From 2005 through 2009, as the state's pension hole grew especially deep, the SEC says the administration of then-Governor Rod Blagojevich misled investors who were buying the state's bonds about just how bad Illinois's unfunded pension liability really was.

LAURENCE MSALL: The SEC is saying that there was not sufficient disclosure so that people could evaluate what the real risk of Illinois debt was.

SCHAPER: That's Laurence Msall of the Civic Federation, a budget watchdog group.

MSALL: The state's financial health has slipped to a level unprecedented among any of the 50 states. And this last finding is a very serious indictment of the state's financial reporting.

SCHAPER: Illinois is settling the charges with the SEC, not admitting to any wrongdoing but agreeing to a cease and desist order. A top budget official says the state has been filing more complete financial disclosures since 2010, when New Jersey faced similar charges. Again, Laurence Msall.

MSALL: This is yet another wakeup call for all of the governors of all of the states that the federal government is concerned by the level of debt and the level of unfunded pension liability that continues to grow.

SCHAPER: That unfunded pension liability of all of the states is over $750 billion. Illinois's alone is more than 96 billion. David Schaper, NPR News, Chicago.

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