State Officials Question John Cross About Pensions and Price Transparency

One treasurer on Friday worried that the Securities and Exchange Commission is planning to examine most state pension disclosures in bond documents, while another said small issuers want more guidance for competitive bond sales.

Michael Fitzgerald, Iowa’s Treasurer, expressed concerns about pension disclosures after John Cross, chief of the SEC’s office of municipal securities, told those attending at the  National Association of State Treasurers’ annual Legislative Conference, to expect increased enforcement in the municipal area.

Cross also noted that Congress is considering confirming Mary Jo White, a former U.S. Attorney for the Southern District of New York, as SEC chairman. She was a tough enforcer of securities and other laws.

Fitzgerald asked Cross what the SEC’s recent enforcement action against the state of Illinois would mean for general obligation issues in the future.

On March 11, the SEC charged Illinois with securities fraud for disclosing misleading information about its public pension system between 2005 and 2009 while it issued some $2.2 billion of general obligation bonds. Illinois failed to disclose that its statutory funding plan significantly underfunded its pension obligations and increased risk to its overall financial condition, the SEC charged. The state settled the charges by agreeing to a cease and desist order and to take remedial action.

Fitzgerald wanted to know whether public pensions will now always be subject to strict SEC scrutiny during general obligation and moral obligation issuances.

“To be clear the general standard is whether or not the financials of a particular public pension are material to your bond issue,” Cross said. “You shouldn’t overreact to that.”

Meanwhile, Mary Margaret Collier, Tennessee’s director of state and local finance, said that while federal regulators have done a good job advising larger issuers on disclosure guidelines prior to pricing bonds, smaller issuers continue to find that guidance vague.

“I’m concerned especially for the smaller issuers who must issue debt at competitive sale,” Collier said. “I would ask you to consider the competitive sale issuers with more specificity. Some of the disclosures for EMMA, the underwriter is supposed to post the [preliminary official statements]. There is no underwriter in a competitive sale.”

Cross said that it is part of a “big, long-term goal” to improve price transparency overall.

“We need to figure out ways to get more information onto EMMA, not so much by issuers themselves, but in general,” he said.

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