Let the buyer beware

The Securities and Exchange Commission recently settled a fraud claim against the State of New Jersey.  The details are in this Bloomberg News article:

http://www.bloomberg.com/news/2010-08-18/new-jersey-settles-sec-claims-of-misleading-bond-investors-on-pension-fund.html

Here are the highlights:

New Jersey settled claims that it misled investors in $26 billion of municipal bonds by masking underfunding of its two biggest pension plans, in the first Securities and Exchange Commission case to target a state.

Documents for 79 bond offerings from 2001 to 2007 “created the false impression” that the Teachers’ Pension and Annuity Fund and the Public Employees’ Retirement System were adequately funded, hiding that the state couldn’t make contributions without raising taxes or cutting services, the SEC said in a statement today.

The suit marks the first time the SEC has sued a state for violating federal securities laws and marks an early salvo in the agency’s plan to crack down on fraudulent practices in the $2.8 trillion municipal bond market.

State and local governments all across America have substantial unfunded pension liabilities. Can bond holders now file claims against these bond issuers due to misrepresentation of their pension liabilities? If so this could be a bonanza for trial attorneys.