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TRENTON
– The Office of the Attorney General
and the Department of the Treasury announced
today that the State of New Jersey (the
“State”) resolved a three year
fact finding inquiry conducted by the U.S.
Securities and Exchange Commission (the
“S.E.C.” or the “Commission”)
that was initiated in April 2007 in connection
with the State’s offer and sale of
general obligation bonds and State-contract
bonds (the “Bonds”). The focus
of the S.E.C. inquiry was on the disclosure
of information concerning the State’s
pension funds in the offering statements
for the Bonds. The State fully cooperated
with the S.E.C. during its inquiry.
In reaching the resolution with the State,
the Commission instituted administrative
proceedings and imposed a cease-and-desist
order (the “Order,” attached)
wherein it credited the State’s cooperation
in the Commission’s inquiry, as well
as the remedial measures instituted by the
State to ensure compliance with its disclosure
obligations under the federal securities
laws. Under the terms of the Order, the
State was not required to pay any civil
fines or penalties. While the State did
not admit or deny the S.E.C.’s findings
in the Order, it agreed not to commit or
cause any future violations of Section 17(a)(2)
and 17(a)(3) of the Securities Act of 1933.
According
to the Order, the S.E.C. found that between
August of 2001 and April 2007, a period
in which the State issued over $26 billion
in Bonds in approximately 79 offerings,
the State acted negligently in failing to
adequately disclose in its bond offering
documents information concerning two pension
plans, namely, the Teachers’ Pension
and Annuity Fund (“TPAF”) and
the Public Employees’ Retirement System
(“PERS”). During that time-frame,
among other things, the Commission found
that the State did not adequately disclose
information relating to legislation adopted
in 2001 (the “2001 Legislation”)
which increased retirement benefits for
employees and retirees in TPAF and PERS.
The Commission also found that the State
did not make adequate disclosure of the
use of the benefit enhancement funds (the
“BEFs”) which were created by
the 2001 Legislation to fund the costs associated
with the increased benefits, but were used
as a credit against the State’s funding
contributions to the pension plans for Fiscal
Years 2004 through 2006. Furthermore, the
Commission found that the State did not
make adequate disclosure about the use of
a “phase-in plan” beginning
in Fiscal Year 2004 for the State’s
contributions to TPAF and PERS.
Immediately
following the initiation of the S.E.C.’s
inquiry into the financial disclosure practices
of the State’s bond offerings in April
2007, the State disclosed the S.E.C.’s
inquiry in subsequent bond disclosure documents.
Also, the State undertook substantial remedial
measures, which are outlined in the S.E.C.’s
Order. These remedial measures included
the engagement of outside disclosure counsel
beginning in Spring 2007 to advise the State
on an on-going basis regarding its disclosure
obligations under the federal securities
laws. Upon engagement, disclosure counsel
assisted the State in updating and clarifying
the pension disclosures appearing in the
bond offering documents. The State also
improved its disclosure process by instituting
formal, written policies and procedures.
These policies and procedures included,
among other things, establishing a committee
comprised of senior Treasury Department
officials, representatives from the Attorney
General’s office, and outside disclosure
counsel to oversee the entire disclosure
process and to review and make recommendations
regarding the State’s disclosures
and disclosure practices. Additionally,
the State implemented an annual mandatory
training program for the employees involved
in the disclosure process to ensure compliance
with the State’s disclosure obligations
under the federal securities laws.
From
the initiation of the S.E.C.’s inquiry
to the present, no rating agency has lowered
the State’s credit rating and the
State has continued to make all required
debt service payments on the Bonds.
The
resolution of the matter with the S.E.C.
was handled on behalf of the State by Executive
Assistant Attorney General Marc-Philip Ferzan;
Director of the Division of Law, Robert
M. Hanna; and Susan K. Fischer, Assistant
Attorney General in the Division of Law.
The State was also represented by the law
firm of Fried, Frank, Harris, Shriver &
Jacobson LLP from the inception of the S.E.C.’s
inquiry.
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