Thursday, August 19, 2010

SEC accuses New Jersey of pension misrepresentation; SEC charges against many governments could undermine tax free bond funds of retirees

The Securities and Exchange Commission has formally accused the state of New Jersey with pension fraud, according to a New York Times story, by Mary Williams Walsh, link here.

There SEC issued a cease-and-desist order to the state, which accepted it without admitting fault. The SEC maintains that the state has been claiming it funds workers’ pensions when it does not. The state can no longer make these claims. One ultimate result could be jeopardy to state bond holders. That could affect many people with municipal bond funds, such as many retirees, who pay little attention to individual bonds.

This is only the second charge against a government entity; the first was the City of San Diego.

The word on the Street is that many more such charges are coming, which could affect the values of some kinds of bond funds, especially tax-free funds composed of local government and school district or transportation authority bonds. What about DC’s Metro?

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