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Steal a car, you go to jail. Refuse big pharma the pleasure of injecting your kids with poisons such as chemo or vaccines, you can go to jail. Bill S.3081 will even soon waive your Miranda rights.
New Jersey emits fraudulently $ 27 Billion of municipal bonds after lying about their finances and … nothing happens. They even emitted an additional $ 2 billion just after the ‘trial’.
Who is crazy enough to buy those things, or invest in the markets ?
I just posted about the $ 4 TRILLION fraud of the SEC itself? They are the biggest thieves of all. The Markets are just a giant money-sucking game organized by a financial mafia to steal money from small investors and pension funds. If you think the SEC tries to protect them, read the following article, and make up your mind.
See the story below to understand how well they protect investors. New Jersey fraudulently emitted $ 27 billion of municipal bonds.
Look at newspapers : NJ “settles” SEC fraud charges over bond sales. That makes you think they’ve had some sort of punishment right ? Nope. They admitted, and kept going.
I wish I could rob a bank and come up with the same kind of punishment, it would be great!
Elaine Greenberg, chief of the SEC’s municipal securities and public pensions unit, describes the problem as ‘an area of concern’.
Another Warning Shot for Bond Investors
By Ian Mathias
Agora Financials
Baltimore, Maryland
The United States experienced another interesting first on Wednesday. For the first time in the history of our union, the Securities and Exchange Commission brought charges against a State. The powers that be in New Jersey had been deceiving and misleading investors in regards to the fiscal well-being of the Garden State, and the SEC busted ‘em. Bravo.
That’s where the good news ends.
But first, the Cliff’s Notes to this mess, according to the SEC’s allegations:
In 2001, New Jersey increased pension benefits for state employees without having the funds to cover new benefit expenses. For the next six years, at least, the state continued to underfund the pension system – but hid that information from municipal bond investors. On 79 separate occasions the state sold a total of $26 billion in bonds while “withholding and misrepresenting pertinent information about its financial situation,” said SEC director of enforcement Robert Khuzami.
In other words, they lied so that the bonds they were selling would appear more attractive. It’s classic balance sheet fraud, committed by senior state officials working for both democrat and republican governors. And the state’s bond underwriters – JP Morgan, Citi, Morgan Stanley, Bank of America, Barclays, Merrill and (of course) Goldman Sachs – all probably lied too. At the very least, they all failed to conduct due diligence before vouching for the quality of the state bonds.
What’s the penalty for this outright fraud? Nothing.
The State of New Jersey will pay the SEC precisely zero dollars. Not one state employee will pay a fine either, or go to jail…not even lose his job. In fact, the State didn’t even have to admit wrongdoing. “New Jersey agreed to settle the case without admitting or denying the SEC’s findings,” calmly explains the SEC press release. Come again? Essentially, the only provision of the settlement is Jersey’s promise that it won’t do this in the future. That’s it.
And Goldman Sachs, JP Morgan and all those other mega-banks? C’mon… They weren’t even mentioned in the SEC’s statement.
It’s worth repeating: We’re talking $26 billion in bonds sold under purposely false pretenses. This isn’t some small-time phony IPO. Pretend a company like McDonald’s, which has a market cap of roughly $77 billion (that’s about the same value of New Jersey’s pension fund system) sold $26 billion in bonds under similar guise. Heads would freaking roll. They’d be lucky to not go bankrupt.
Yet, here we are. New Jersey officials were so unfazed by the SEC settlement – the status quo was so unchanged – that they proceeded with a $2.2 billion bond sale on August 19, 2010. That’s less than 24 hours after the SEC announced the results of their investigation. SEC investigators did a fine job forging into uncharted territory and exposing State fraud, but they offered literally the most toothless settlement possible.
That’s not to say no lessons have been learned. The smart investor should already be leery of municipal bonds, with so many states struggling to close budget gaps while honoring swollen pension agreements. Now you have all but absolute proof that State administrators are not only unable to balance their books, but they’re willing to cook ‘em too. Plus, there is really no incentive for States to change their ways, aside from a gentle tap on the wrist from the SEC.
And this whole mess ought to (though it likely won’t) highlight fundamental unfairness in the way we regulate the $3 trillion municipal bond market. Having the SEC patrol state funds is a hot mess of conflict of interest and political gamesmanship. At the end of the day, this is government policing government…an operation likely to be as inefficient as it is ineffective.
Of course municipalities need a regulator, as they have proven unable to regulate themselves. But once the SEC discovers such a fraud, why not – at the least – order the state to hire a team of private sector auditors that will report their findings to the government every year for the next five…or as long as it takes for the State to get its act together.
How’s that for a stimulus plan? Auditing state pension programs would employ thousands of accountants for years. And those are real jobs, with a real purpose… Bean-counters could get back to work and bureaucrats would have to be just as responsible and forthright as the rest of us. While they’re at it, those auditors can figure out exactly how long those struggling pension funds will last before running out of money. Wouldn’t that be nice to know?
We’ll be on the lookout for an e-mail from Mr. Obama, asking for more details on our stimulus plan. In the meantime, know what you’re getting into when you buy muni-bonds. Only one state has ever defaulted on its bonds – Arkansas back in 1934. So the odds are still in your favor. But reason is not. Now ethics aren’t, either.
Ian Mathias
For The Daily Reckoning