Federal securities regulators filed fraud charges against the state of Kansas today, alleging that bond offering documents failed to disclose the risks to investors from the state's underfunded pension system, CNBC reported.
The U.S. Securities and Exchange Commission previously has taken action against New Jersey and Illinois over pension disclosures to investors. In Kansas' case, the commission focused on disclosures related to bond issues that raised $273 million in 2009 and 2010.
"Investors must be given adequate information to evaluate the impact of pension fund liability on a state's overall financial condition," Andrew Ceresney, director of the SEC Enforcement Division, said in a statement.
Kansas agreed to a cease-and-desist order against future violations and has taken remedial action on its pension disclosures, the SEC said.
According to one study at the time, the Kansas Public Employees Retirement System was the second-most underfunded statewide public pension system in the nation. In the offering documents for the bonds, however, Kansas did not disclose the existence of the significant unfunded liability in KPERS. Nor did the documents describe the effect of such an unfunded liability on the risk of non-appropriation of debt service payments by the Kansas Legislature.
The SEC's investigation found that the failure to disclose this material information resulted from insufficient procedures and poor communications between the Kansas Development Finance Authority and the Kansas Department of Administration, which provided the authority with the information to include in the offering materials.