Federal regulators charge Illinois with securities fraud

Illinois officials failed to disclose problems with the state’s pension funding at the same time as they offered more than $2.2 billion worth of municipal bonds in the late 2000s, federal financial regulators alleged Monday.

In charges against the corruption-plagued state, the Security and Exchange Commission accused Illinois officials of neglecting to inform investors that its statutory plan “significantly underfunded” the state’s pension obligations, increasing the risk to its overall financial condition.

The state, from 2005 through 2009, also misled investors about the effects of changes to its plan, the SEC alleged.

The state has since taken multiple corrective actions. Without admitting or denying the charges, Illinois agreed to settlement terms laid out by the SEC.

“Municipal investors are no less entitled to truthful risk disclosures than other investors,” said George S. Canellos, acting director of the SEC’s  enforcement division. “Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system.”

The formal charges and settlement terms are available here.