SEC agrees to 'No Wrong doing' in Illinois Security Fraud

[Exterous]

Might as well title the article 'How to scam investors and get away with it'*

For years, Illinois officials misled investors and shortchanged the state pension system, leaving future generations of taxpayers to foot the bill, U.S. securities regulators allege.

The Securities and Exchange Commission on Monday charged Illinois with securities fraud, marking only the second time the agency has filed civil-fraud charges against a state.

But the agency and the state also announced that a settlement had already been reached in which Illinois won't pay a penalty or admit wrongdoing.

The problems date back to 1994, when Illinois lawmakers passed a funding plan that would allow the state to amortize, or spread the pension costs, over 50 years. Most pensions use a 30-year amortization period.

State officials also ignored the common practice of calculating contributions to the plans based on what is known as the "Actuarially Required Contribution."

Instead, Illinois left it to lawmakers to decide how much to contribute to the funds each year.

In some years, the state took "pension holidays," lowering its planned pension contributions by about half.

By 2009, actuaries and a consultant hired by the state began warning that the underfunding could lead to the system's insolvency, according to the SEC order.

The consultant said in a document that the state's pension system was so underfunded that it would likely "never be able to afford the level of contributions" required to reach 90% funded.

Yet, these concerns weren't disclosed to investors in bond-offering documents, the SEC said.

http://online.wsj.com/article/SB10001424127887323826704578354370478104256.html#articleTabs%3Dcomments

I get the reasoning behind not leveling fines (the cost is borne by the tax payers) but how about some criminal accountability? Instead the SEC plays its usual toothless bitch role letting the people who fucked over investors walk with ZERO repercussions other than a weak 'Don't do this again'. Why they even do that is beyond me as its not like there was any consequence handed out. What a fucking joke...

 

[Mursilis]

I get the reasoning behind not leveling fines (the cost is borne by the tax payers) but how about some criminal accountability?

Your article states:

State officials also ignored the common practice of calculating contributions to the plans based on what is known as the "Actuarially Required Contribution."

Instead, Illinois left it to lawmakers to decide how much to contribute to the funds each year.

In some years, the state took "pension holidays," lowering its planned pension contributions by about half.

By 2009, actuaries and a consultant hired by the state began warning that the underfunding could lead to the system's insolvency, according to the SEC order.

Sounds like the citizens who elected the lawmakers screwed over themselves.

It seems to be the Achilles heel of democracies - the average person tends to favor the short term at the expense of the long term in fiscal matters (hence, we get all these reports about how the average person doesn't have nearly enough saved for retirement, emergencies, etc.), and will elect officials to do the same.

Also, can't forget the obligatory "Corruption in Illinois?!?! Shocking!!!" sarcasm.

 

[ivwshane]

Your article states:



Sounds like the citizens who elected the lawmakers screwed over themselves.

It seems to be the Achilles heel of democracies - the average person tends to favor the short term at the expense of the long term in fiscal matters (hence, we get all these reports about how the average person doesn't have nearly enough saved for retirement, emergencies, etc.), and will elect officials to do the same.

Also, can't forget the obligatory "Corruption in Illinois?!?! Shocking!!!" sarcasm.

Do you think these law makers were voted in because of their position on pension payments? I suspect not a single campaign even mentioned it. Blaming voters for something they are unaware of seems pretty ridiculous to me.

 

[Exterous]

Sounds like the citizens who elected the lawmakers screwed over themselves.

That has to do with the under funding of the pension - not the fraudulent (SEC's words) misleading of investors which likely includes more than the Illinois residents that voted for the politicians. Furthermore if the politicians were hiding how underfunded the pension was how are the voters supposed to know about the financially dangerous actions of the elected?

 

[Mursilis]

That has to do with the under funding of the pension - not the fraudulent (SEC's words) misleading of investors which likely includes more than the Illinois residents that voted for the politicians. Furthermore if the politicians were hiding how underfunded the pension was how are the voters supposed to know about the financially dangerous actions of the elected?

Politicians generally should be distrusted until they've proven they can be trusted. Anything else is foolish and ignores history and human nature.

 

[Fern]

I cannot access the link, seems to require a subscription.

So, are there two distinct problems here?

1. An underfunded pension plan? Frankly, that strikes me as the norm and not the exception based on info I've seen over the years.

2. Misleading "investors". What investors? Are people who invest in general ILL bonds considered investors? If the investors were defrauded in any way I think the state should be sued. The SEC doesn't need to collect fines, though.

Fern

 

[Mixolydian]

Sounds like the citizens who elected the lawmakers screwed over themselves.

When your choices for candidates are nothing more than different piles of dog shit, how can the voters possibly win? It's not their fault. They're getting dog shit in one form or another.

 

[Mursilis]

When your choices for candidates are nothing more than different piles of dog shit, how can the voters possibly win? It's not their fault. They're getting dog shit in one form or another.

Then they need to get more informed, and more involved in the process. You want the benefits of a representative democracy? Then be prepared to do the work. Turn off your idiot box (TV), educate yourself, and become part of the solution.

 

[Exterous]

Politicians generally should be distrusted until they've proven they can be trusted. Anything else is foolish and ignores history and human nature.

So they get a free pass for fraud?

I cannot access the link, seems to require a subscription.

So, are there two distinct problems here?

1. An underfunded pension plan? Frankly, that strikes me as the norm and not the exception based on info I've seen over the years.

2. Misleading "investors". What investors? Are people who invest in general ILL bonds considered investors? If the investors were defrauded in any way I think the state should be sued. The SEC doesn't need to collect fines, though.

Fern

Admittedly I was not paying as much attention then but the SEC claims the obscuring started in 2005 which I believe is before pension underfunding became more widely known. In either case the SEC charges that the IL disclosures were not the truthful risk disclosures they require.

That said those who bought the bonds are considered investors. (Why wouldn't they be?)

For future reference WSJ has an agreement with google that you can search for one of their articles and read it without a subscription.

Also of important note: Illinois does not allow state employees to participate in SS so if the state's pension system fails they have no backup. I wouldn't be surprised if IL tried to tap federal funding for a bail out. They'll probably get it too (for the reason above) so we all get to pay for their mess...

 

[Mursilis]

So they get a free pass for fraud?

Oh yes, that's exactly what I said.

If you hire a known embezzler to handle your money, and that embezzler takes some of it, he/she should go to jail, and you should question your judgment.

 

[Exterous]

If you hire a known embezzler to handle your money, and that embezzler takes some of it, he/she should go to jail, and you should question your judgment.

And you know the only people investing in this bond were the ones who elected him how? Keep in mind that - at the time this started - there were no signs that the system was in trouble and everything appeared to be working correctly as it had been since inception. If something has a proven track record and the documents that are required to be legally accurate show that same track record is continuing how are you supposed to know something is wrong?

 

[Fern]

-snip-
That said those who bought the bonds are considered investors. (Why wouldn't they be?)

Well, surely my mistake, but initially I was trying to wrap my head around the concept of investors in a pension plan. That would be the employees (participants), not any bondholders.

For future reference WSJ has an agreement with google that you can search for one of their articles and read it without a subscription.

Thanks, good to know. I've now read the article and better understand.

Also of important note: Illinois does not allow state employees to participate in SS so if the state's pension system fails they have no backup. I wouldn't be surprised if IL tried to tap federal funding for a bail out. They'll probably get it too (for the reason above) so we all get to pay for their mess...

Hmmm. I don't seem to recall state govt employees being exempt from SS.

Too bad the PBGC doesn't have authority over these state plan plans. But that would be more fed govt oversight over states which some would fine questionable. OTOH, failing that the fed govt shouldn't bail them out IMO.

I'm guessing if the fed govt doesn't implode on its own, the (many?) failing states will do it anyway. We don't have a bottomless pot of money to just bail anybody and everything out.

Fern

 

[Fern]

And you know the only people investing in this bond were the ones who elected him how? Keep in mind that - at the time this started - there were no signs that the system was in trouble and everything appeared to be working correctly as it had been since inception. If something has a proven track record and the documents that are required to be legally accurate show that same track record is continuing how are you supposed to know something is wrong?

Sounds like another failure of bond rating agencies.

Fern

 

[Exterous]

Hmmm. I don't seem to recall state govt employees being exempt from SS.

I don't know the exact number but I believe its only a small number of states that exempt their employees from SS. They don't pay into SS at all. Unfortunately Il is one of them

Illinois is one of a number of states where the teachers, state police and certain other public workers do not participate in the Social Security program, so they have no federal backstop in case the state system should fail.

http://www.nytimes.com/2013/03/12/business/sec-accuses-illinois-of-securities-fraud.html

Too bad the PBGC doesn't have authority over these state plan plans. But that would be more fed govt oversight over states which some would fine questionable. OTOH, failing that the fed govt shouldn't bail them out IMO.

I'm guessing if the fed govt doesn't implode on its own, the (many?) failing states will do it anyway. We don't have a bottomless pot of money to just bail anybody and everything out.

Fern

Well given that Illinois would likely be one of the first (if not the first) to need a bail out and that they will be able to wave the masses now pension-less and SS-less state employees in front of the camera I imagine they would get a bailout. Obviously just my opinion

Sounds like another failure of bond rating agencies.

Fern

And the elected officials, and the SEC but no one was penalized for it

 

[Pray To Jesus]

How would the citizens of IL go about throwing these con artists in jail?

 

[chucky2]

How would the citizens of IL go about throwing these con artists in jail?

WTF are you talking about? "The citizens" of IL put these guys in position to do shit like this. You don't think the union leadership doesn't know that the pensions are severely underfunded? Of course they do. And they know that when push comes to shove down the road, they've got the political will and the political clout (read: blackmail material) to get the state to fund whatever it'll take to keep their folks on the gravy train.

As long as the leeches keep getting their placation money so as to not riot and/or have glimmer of thought on voting different (or, just not voting), they combined with union and Dem muscle will ensure this isn't a problem for them...and as a reward, the Pols will get voted right back in.

Win-win-win for them, infinity lose for the rest of tax paying Illinoisans.

Chuck

 

[SMOGZINN]

How would the citizens of IL go about throwing these con artists in jail?

Armed revolution? I doubt anything short of that would accomplish it.

 

[chucky2]

Wouldn't work. The folks getting their way will be unions and leechers, as they've got the numbers and the leadership orgranization to make either a big enough stink to get "their" money, or, the threat of a big enough stink. Since money isn't real to Pols, they'll cave...many happily with money - and votes - in their pocket.

IL is beyond F'd.