With federal financial regulators scrutinizing Rhode Island's bond offerings and pension disclosures, the state has hired disclosure counsel to review its practices and pave the way to issuing new bonds.
Gina Raimondo, Rhode Island's general treasurer, last week said the state had retained Hawkins, Delafield & Wood LLP's Washington office to revamp its disclosure practices, with an eye toward reentering the muni market.
"The state needs to be able to enter the bond market in the years to come on the most favorable terms possible and complete disclosures are critical to ensuring this access," Raimondo said in a statement.
The announcement surfaced two months after the Securities and Exchange Commission's Boston office began probing the accuracy of Rhode Island's public-sector pension disclosures, dating back to 2007. The state's public pensions are underfunded by an estimated $4.7 billion to $5 billion, according to Joy Fox, a spokeswoman in the treasurer's office.
Rhode Island has not delayed any bond offerings since learning of the SEC inquiry, she said, but later this year it would like to issue new short- and long-term debt, including general obligation bonds, certificates of participation, and tax-anticipation notes.
"The exact timing is still under review," Fox said.
The SEC's Rhode Island probe stems from a broader push by the commission to explore whether struggling state and municipal borrowers, including Illinois and Harrisburg, Pa., have provided accurate financial information to municipal bond investors.
Last year, the SEC sued New Jersey — the first time it had filed securities fraud charges against a state — for failing to disclose to muni bond investors that it was underfunding the state's two largest pension plans.
Specifically, the SEC found that the state failed to disclose material information about the plans "due to a lack of disclosure training and inadequate procedures" for drafting and reviewing bond-disclosure documents.
New Jersey settled without admitting wrongdoing or paying a fine, but agreed to cease and desist from any future violations of the securities laws.
In an order outlining the settlement, the SEC said it had weighed the state's "remedial acts," including its retention of disclosure counsel to provide ongoing advice about the state's disclosure obligations, review its bond offering documents, and enhance its disclosures.
Issuers who find themselves under SEC scrutiny have taken note.
Illinois retooled its pension-reporting standards on bond-offering documents earlier this year, after hiring Chapman and Cutler LLP to update its disclosure policies and procedures in light of the New Jersey case.
And now Rhode Island has heeded the call as well.
John McNally, who will spearhead the Rhode Island engagement for Hawkins Delafield, was also retained as disclosure counsel by San Diego in 2004. At the time, the SEC was investigating the city's pension-fund disclosures in five muni issues totaling $260 million that were sold in 2002 and 2003, as well as certain secondary-market disclosure documents.
In a 2006 settlement with the SEC, San Diego agreed to hire an independent consultant to make improvements to the city's policies, procedures, and internal controls relating to bond disclosure.
Rhode Island has asked McNally for advice in three areas: developing written disclosure policies and procedures, conducting and developing employee training in compliance with the federal securities laws, and reviewing the state's current pension plan disclosures.
"The SEC has given us some very clear guidelines," McNally said.