SEC probing RI bond offerings

PROVIDENCE, R.I. (WPRI) - The Securities and Exchange Commission is probing Rhode Island's bond offerings, WPRI.com has confirmed.

The SEC informed General Treasurer Gina Raimondo of the investigation on Monday afternoon but offered no further details, spokeswoman Joy Fox said Thursday. The agency has not requested any information from the treasurer's office.

"It is regrettable to have inherited this situation so early in my administration before having an opportunity to fully address these issues," Raimondo, a Democrat, said in a statement.

David Bergers, who leads the SEC’s regional office in Boston, declined to comment, citing agency policy.

Gov. Lincoln Chafee was informed of the probe within the past two days and is closely monitoring the situation, spokesman Michael Trainor told WPRI.com. "Obviously, the state is going to cooperate with the SEC in any way, shape or form," he said.

• Nesi's Notes: How the Illinois accounting method works

Former Treasurer Frank Caprio, who left office in January after a single four-year term, did not return a phone call requesting comment on the investigation.

Although no details are available about the probe, the SEC has put together a special team to focus on public pension systems. Last year it brought a landmark case accusing New Jersey of fraudulent accounting.

The New York Times has reported the SEC is investigating Illinois' use of an unusual method of pension accounting, which is also used in Rhode Island; it's unclear whether that's related to the probe Raimondo was informed about on Monday.

"I was not entirely surprised to receive the SEC’s call," Raimondo said in a statement. "For months Rhode Island has been listed among several states with precarious finances." The treasurer announced a “top-to-bottom review” of the Treasury on Monday, just hours before she received the call from the federal investigators.

• Nesi's Notes: Just how bad is RI's pension problem?

Rhode Island’s $4.4 billion pension gap was the nation’s fourth-largest as of June 2008, the Pew Center on the States reported last year. Its pension assets could only cover 61 percent of its long-term liabilities. The only states with systems more poorly funded than Rhode Island’s were Illinois, Kansas and Oklahoma, the nonprofit said.

Matt Fabian, a municipal bond analyst at MMA Research, told The Associated Press the SEC looks to be stepping up its regulation of states, cities and towns.

"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."

Fabian also said he thinks the SEC is likely examining whether Rhode Island gave an inaccurate picture of the financial health of its pension funds when it sold bonds to investors.

The state contributed $205 million to the pension fund in 2008-09 and was expected to put in $217 million in 2009-10 and $226 million in 2010-11, bond disclosure documents show.

The General Assembly has enacted changes to the pension system during four of its last six sessions.

tnesi@wpri.com