New Jersey has become the first state to ever be charged with civil fraud by the Securities and Exchange Commission. The SEC on Wednesday charged that in the course of selling municipal bonds to investors "the State misrepresented and failed to disclose material information regarding its under funding of New Jersey's two largest pension plans, the Teachers' Pension and Annuity Fund ("TPAF") and the Public Employees' Retirement System ("PERS")."
State governments usually sell bonds as a way to raise money to fund specific projects. They borrow from investors with the promise to repay the debt later, plus interest. As a protection to investors, all bond issuers, state governments included, are required to provide investors with the information necessary for investors to make an informed decision regarding the level of risk associated with the investment.
New Jersey sold over $26 billion in bonds between 2001 and 2007, but the SEC charged that the state failed to inform investors that the state has not been fully funding its pension funds and cannot fully fund them in the future without raising taxes or cutting spending, which could impact the state's ability to repay these bonds. According to the SEC, New Jersey's
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