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Illinois Settles SEC Charges Over Pensions
Reuters | March 12, 2013 | 04:55 AM EDT

Illinois, which has the worst-funded state pension system in the United States, has agreed to settle federal civil securities fraud charges alleging it repeatedly misled municipal bond investors about the underfunding of its pensions, the Securities and Exchange Commission said.

Illinois neither admitted nor denied the charges and was not ordered to pay a penalty. It agreed to change its practices to more fully disclose risks to bond investors, the SEC said Monday.

The settlement of charges that Illinois failed from 2005 to early 2009 to fully tell investors the risks of buying $2.2 billion worth of its municipal bonds is the latest blow to the state's reputation as fiscally troubled and crippled by a pension shortfall of $98.6 billion.

In official statements accompanying bond offerings Illinois explained that factors such as market performance had contributed to the increase in its unfunded pension liability, but it "misleadingly omitted to disclose the primary driver of the increase - the insufficient contributions," the SEC said.

In order to keep its contributions low, Illinois had developed a complicated system that included "ramp-ups" and "pension holidays," the SEC said.

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