The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, D.C.
The U.S. Securities and Exchange Commission seal hangs on the facade of its building in Washington, D.C. - 
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BILL RADKE: The government's financial regulator, the Securities and Exchange Commission, has settled its case against... New Jersey. You heard that right. this isn't a case against a bank or a mutual fund. It is the first time a state has been charged with securities fraud. We're joined live by Marketplace's Gregory Warner, in Philadelphia. Hi Gregory.

GREGORY WARNER: Good morning.

RADKE: How does a state commit securities fraud?

WARNER: It starts with the state's two largest pension funds: the teacher's pension and the public employees pension. And during the period we're talking about, which is 2001-2006, New Jersey paid only a third of the contribution that state law required. But they were promising to fully fund those plans in the future. That promise is really where this trouble starts cause the SEC says that state officials had abandoned that promise. Meanwhile, New Jersey was asking investors to buy its state bonds, raising over $26 billion. And you combine those two things, that's the fraud. The SEC says the state sold bonds without telling investors that they had this pension debt, they weren't planning to settle up.

RADKE: What are the consequences for the state?

WARNER: New Jersey has settled the case, as you said. So state officials are saying: no harm here, bond investors have been paid. The state's bond rating hasn't gone down. But the SEC is conducting investigations into other states. Lots of states have taken New Jersey's exact strategy -- avoid financial disaster by raising money for municipal bonds. And demand for municipal bonds is very, very high these days cause they're seen as safe.

RADKE: So this doesn't end with New Jersey? The SEC has got other states in its sights?

WARNER: Well, Bill, as a sign of the SEC's seriousness on this: As of this January, they have a new unit. The municipal securities and public pension unit. And that's not just a title. You've got a unit, you got desks, you have staff. You need something to do. You have cases to solve, right?

RADKE: Marketplace's Gregory Warner. Thanks Gregory.

WARNER: Thank you, Bill.