As usual, New Jersey leads the nation. Today, rather than Snooki showing the country a new level of reality t.v. debauchery, we have the Garden State itself becoming the first state of the union ever charged with violating federal securities laws.
According to the SEC release, New Jersey failed to disclose in 79 state bond offerings between 2001 and 2007 (totaling $26 billlion) that two public employee pension funds were underfunded. According to the SEC, the failure to disclose masked
the fact that New Jersey was unable to make contributions to [the pension funds] without raising taxes, cutting other services or otherwise affecting its budget. As a result, investors were not provided adequate information to evaluate the state’s ability to fund the pensions or assess their impact on the state’s financial condition.
Given that this post is about securities law from a securities law professor, I should note that Ma Gerding is a New Jersey state employee.
New Jersey is a special state in many ways, but my gut instincts tell me this SEC action is just the vanguard of a coming wave of state and municipal securities litigation. We have all the ingredients for an epidemic:
Start out with the dire budget situation of states and municipalities squeezed by the financial crisis.