In Striving for Openness Among Public Pensions, SEC Pursues CalPERS for Inadequate Disclosure

(January 7, 2011) — A recent investigation by the Securities and Exchange Commission (SEC) is focusing on whether California’s largest public pension breached securities laws by failing to adequately disclose information about the nation’s largest public pension fund, The New York Times is reporting.

The $220 billion California Public Employees’ Retirement System (CalPERS) lost nearly 25% of its total investment portfolio during the financial crisis, which led to questions as to whether the fund was transparent in years prior about the riskiness of its pension investments. Ironically, CalPERS has been spearheading the push for heightened transparency, after worries about lack of disclosure in the pension fund community exploded last year when a pension-fund scandal in New York exposed the role of placement agents in bribery and corruption charges. “Gathering information is not enough,” said Anne Stausboll, CalPERS chief executive officer, to the LA Times early last year. “We remain firmly committed to pursuing a full and fair examination that the special review will provide, and to backing legislation that would remove contingent fee arrangements and require placement agents to comply with the same rules as lobbyists.”

In related news, the SEC last year issued its first suit against a state for securities fraud, claiming that when New Jersey issued $26 billion in bonds between 2001 and 2007, it fraudulently and erroneously portrayed its pension funds as adequately funded.

As the first state to ever face securities fraud charges by the SEC, the New Jersey suit reflected the emergence of a greater effort by the agency to catch and crack down on fraudulent practices in the $2.8 trillion municipal bond market. The regulator focused on New Jersey, but the SEC is conducting several investigations into what other states disclosed about their deteriorating finances. According to the Pew Center on the States, US state pensions were underfunded by at least $500 billion in 2008.