After Illinois, Rhode Island in Hot Seat Over Bond Offerings

Jack Humphrey, Regulatory journalist
February 04, 2011 /

The Securities and Exchange Commission has expanded its investigation into bond offerings of municipalities to include Rhode Island, State General Treasurer Gina Raimondo said on February 3 after the SEC told her about the move in a phone call.

Raimondo, however, said the SEC did not give her complete details of the investigation relating to Rhode Island‘s bond offerings nor did the regulators ask for the necessary data from her office. But she added the state is willing to cooperate with the SEC’s probe.

Late last month, the SEC has also started investigating the state of Illinois relating to its pension funds disclosure to find out whether it provided the necessary information to the buyers of bond or misled them from the actual magnitude of risk they were facing.

The first securities fraud charges have been filed against New Jersey in August 2010 for not giving municipal bond investors sufficient information on pension funds, which is necessary to assess the financial position of the state, and for alleging that it had assets, which were actually non-existent. New Jersey settled SEC’s charges without admitting or denying the allegations.

Raimondo said Rhode Island has a projected unfunded pension liability of approximately $4.7 billion. Investors may face higher risk with large unfunded pension liability, which subsequently affects the pension’s bond ratings leading to higher cost of borrowing money.

Raimondo said she has already started her own investigation into how her department discloses information to bond investors even before the SEC bared its own version of the inquiry, and added there is currently no problem with the bond disclosures of Rhode Island.


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