State General Treasurer Gina Raimondo said Thursday that the SEC told her Monday that it had "opened an investigation relating to the state's bond offerings." She said the SEC gave her no additional details about the probe, and it had not yet requested any information from her office.
The SEC is already investigating how Illinois reports pension costs to bond investors, and looking into whether Harrisburg, Pa., provided appropriate information to bond investors. New Jersey was the first state ever charged for violations of securities laws and settled last year without admitting or denying the allegations. The SEC said New Jersey did not give municipal bond investors enough information to fully assess the state's financial picture.
Elaine Greenberg, chief of the SEC's municipal securities and public pensions unit, said in August that the agency wants to make sure states and municipalities are adequately disclosing their pension fund liabilities. When the unit was established about a year ago, SEC officials said one of the primary areas it will focus on is accounting of public employee pensions and disclosure violations.
The size of a state or municipality's unfunded pension liability can affect its bond rating, and make it more or less expensive to borrow money. A larger unfunded pension liability means more risk for investors.
It appears the SEC is stepping up its enforcement efforts amid concern among investors about the fiscal health of state governments and municipalities, said municipal bond market analyst Matt Fabian, a managing director at MMA Research.
"Municipal governments are in the news every day. There's ongoing budget crises this year. Medicaid next year. Pension funding for the next two decades," he said. "They are attempting to improve disclosure this way."
Rhode Island has a projected unfunded pension liability of about $4.7 billion, Raimondo's office said.
Raimondo, a Democrat who took office last month, told The Associated Press that because the SEC has given her so little information, it is not clear to her whether the investigation focuses on Rhode Island's unfunded pension liability and how it is disclosed to those who buy bonds issued by the state. But she said she wasn't surprised by the SEC's call Monday because Rhode Island is one of many states with precarious finances and a large unfunded pension liability.
In Washington, SEC spokesman John Nester declined to comment.
Fabian said he believes it's likely the SEC is investigating whether the state gave a misleading picture of its pension funding when it sold bonds. He cited a case the SEC settled last year with four officials in San Diego, who paid fines of $5,000 to $25,000 and admitted they misled investors about the city's pension and retiree health debts in municipal bond sales.
Fabian said that in the short term, such investigations can create uncertainty among investors, but said it was a net positive in the long term.
"Better information, better disclosure would improve the market," he said.
Raimondo said her office would cooperate fully with the investigation, and a spokesman for Gov. Lincoln Chafee, an independent, said he was monitoring the situation.
Raimondo's predecessor, Frank Caprio, a Democrat who ran for governor last year and lost, did not immediately return a phone message seeking comment.
Earlier on same day she got the call from the SEC, Raimondo launched a review of her department, including how it makes disclosures to bond investors. She said at the time that the state's current bond disclosures are in good shape, but there is room for improvement.
She said that regardless of the probe, she has already begun to work to improve Rhode Island's disclosures to investors, and she said the disclosures will be better when the state makes its first bond offering this year under her watch.
"I think the state can do a better job of providing greater disclosure around its unfunded pension liability," she said. "The state needs to be able to access the bond market in the years to come on the most favorable terms possible. It is critical to present a complete picture of our finances to potential bond investors."
AP Business Writer Marcy Gordon in Washington contributed to this report.