sailingaway
06-02-2013, 09:08 PM
It has been a busy few weeks for the Securities and Exchange Commission. In May, the SEC charged two cities—Harrisburg, Pa., and South Miami, Fla.—with securities fraud for allegedly deceiving investors in their municipal bonds.
This follows similar fraud charges against states, New Jersey in 2010 and Illinois in March, after SEC investigators uncovered what they called "material omissions" and "false statements" in bond documents related to those state's pension funds.
With Harrisburg, however, the SEC has gone further and charged the city government with "securities fraud for its misleading public statements when its financial condition was deteriorating and financial information available to municipal bond investors was either incomplete or outdated." The SEC says this is the first time the regulator has "charged a municipality for misleading statements made outside of its securities disclosure documents."
The Harrisburg charges are part of a broader SEC effort to scrutinize state and local government issuers in the nation's $3 trillion municipal-bond market. "Anyone who follows municipal finance knows that budgets can sometimes be a work of fiction," says Anthony Figliola, a vice president at Empire Government Strategies, a Long Island-based consulting firm to local governments. "Harrisburg is the tip of the iceberg."
And a mighty iceberg it is. The 2012 State of the States report, released in November by Harvard's Institute of Politics, the University of Pennsylvania's Fels Institute of Government and the American Education Foundation, found state and local governments are carrying more than $7 trillion in debt, an amount equal to nearly half the federal debt. Often, the report said, "States do not account to citizens in ways that are transparent, timely or accessible."
Consider the practices of Stockton, Calif., which last June became the nation's biggest city to file for bankruptcy. In 2011, Stockton's new financial managers issued a blistering critique of past accounting practices and acknowledged that the city's previous financials had hidden significant costs, including the real cost of employee compensation and retirement obligations. Bob Deis, the new city manager, declared that Stockton's financials bore "eerie similarities to a Ponzi scheme."
more: http://online.wsj.com/article/SB10001424127887324659404578501241181682894.html?m od=WSJ_Opinion_LEADTop
This follows similar fraud charges against states, New Jersey in 2010 and Illinois in March, after SEC investigators uncovered what they called "material omissions" and "false statements" in bond documents related to those state's pension funds.
With Harrisburg, however, the SEC has gone further and charged the city government with "securities fraud for its misleading public statements when its financial condition was deteriorating and financial information available to municipal bond investors was either incomplete or outdated." The SEC says this is the first time the regulator has "charged a municipality for misleading statements made outside of its securities disclosure documents."
The Harrisburg charges are part of a broader SEC effort to scrutinize state and local government issuers in the nation's $3 trillion municipal-bond market. "Anyone who follows municipal finance knows that budgets can sometimes be a work of fiction," says Anthony Figliola, a vice president at Empire Government Strategies, a Long Island-based consulting firm to local governments. "Harrisburg is the tip of the iceberg."
And a mighty iceberg it is. The 2012 State of the States report, released in November by Harvard's Institute of Politics, the University of Pennsylvania's Fels Institute of Government and the American Education Foundation, found state and local governments are carrying more than $7 trillion in debt, an amount equal to nearly half the federal debt. Often, the report said, "States do not account to citizens in ways that are transparent, timely or accessible."
Consider the practices of Stockton, Calif., which last June became the nation's biggest city to file for bankruptcy. In 2011, Stockton's new financial managers issued a blistering critique of past accounting practices and acknowledged that the city's previous financials had hidden significant costs, including the real cost of employee compensation and retirement obligations. Bob Deis, the new city manager, declared that Stockton's financials bore "eerie similarities to a Ponzi scheme."
more: http://online.wsj.com/article/SB10001424127887324659404578501241181682894.html?m od=WSJ_Opinion_LEADTop