SEC Reminds Public Pension Funds of Obligations

by Mike Godfrey, for LawAndTax-News.com, Washington

07 March 2008

The US Securities and Exchange Commission (SEC) issued a report on Thursday reminding public pension funds of their responsibilities under the federal securities laws.

The report also draws attention to the fact that there is a greater risk of running afoul of anti-fraud and other provisions if they do not have adequate compliance policies and procedures in place to prevent wrongdoing in their money management functions.

The Commission's report stems from an insider trading inquiry into stock purchases by the Retirement Systems of Alabama (RSA), a state pension fund. RSA purchased shares of The Liberty Corporation while in possession of material, non-public information about the prospective acquisition of Liberty.

RSA learned about the transaction because it was to provide financing for the acquisition. RSA did not have any program, policy, practice, or training to ensure that its investment staff understood and complied with the federal securities laws in general, or insider trading laws in particular.

When the information became public, the value of RSA's Liberty shares increased by more than USD700,000.

"Today's report reminds public pension funds of their obligations to prevent fraud and protect investors," announced SEC Chairman Christopher Cox on Thursday.

"While public pension funds are exempt from most of the federal securities laws governing other money managers, they are not exempt from important anti-fraud provisions that prohibit insider trading and other manipulative and dishonest behavior that threatens the integrity of our markets. It is vitally important, therefore, that they have appropriate policies and procedures," he continued.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, added:

"When public pension funds and other unregulated money managers come into possession of material non-public information, they operate at their own peril if they do not have safeguards specifically designed to prevent the misuse of inside information."

In resolving its inquiry into RSA's trading with a Report of Investigation, the Commission took the following into consideration.

• RSA took remedial action that the Commission might have sought in an enforcement proceeding, including adoption of a compliance program and compensation to the sellers of the Liberty stock that it purchased.
• RSA cooperated in the investigation.
• RSA's trading was directed by its CEO, who cooperated in the investigation and authorized RSA's remedial action.
• No individual personally profited from RSA's trading.

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