The Too-Modest Times

A super investigation results in unheard-of fraud charges against the state of New Jersey

Sometimes newspapers are just too modest. Like The New York Times today.

The SEC sued New Jersey for fraud for lying about how much money it was socking away to pay for pensions. We don’t find out till the third-to-last paragraph of the NYT story that the whole thing was uncovered by The New York Times itself three years ago:

These statements continued until an article in The New York Times, in April 2007, described the accounting gimmick. New Jersey then brought in legal advisers and began correcting the six years of false statements.

Of course, The Wall Street Journal neglects to mention its competitor’s fine work, which is a pretty serious violation here. Not in the arcane journalistic etiquette sense, but in that this is a key part of the story that the WSJ has decided is not worth telling its readers. Boo.

On the other hand, applaud Bloomberg for putting the NYT factor up high in its story.

Do these cases just fall from the sky? Do they pop out of a toaster, as Audit Toastmaster Dean Starkman likes to say? No.

In this instance this investigation came from Mary Williams Walsh and the NYT.

Here’s the lede from that awesome 2007 story:

In 2005, New Jersey put either $551 million, $56 million or nothing into its pension fund for teachers. All three figures appeared in various state documents — though the state now says that the actual amount was zero.

The phantom contribution is just one indication that New Jersey has been diverting billions of dollars from its pension fund for state and local workers into other government purposes over the last 15 years, using a variety of unorthodox transactions authorized by the Legislature and by governors from both political parties.

The state has long acknowledged that it has been putting less money into the pension fund than it should. But an analysis of its records by The New York Times shows that in many cases, New Jersey has overstated even what it has claimed to be contributing, sometimes by hundreds of millions of dollars.


The Times’s examination of New Jersey’s pension fund showed that officials have taken questionable steps again and again. The state recorded investment gains immediately when the markets were up, for instance, then delayed recording losses when the markets were down. It reported money to pay for health care costs as contributions to the pension fund, though that money would soon flow out of the fund. It claimed it had “excess” assets that allowed it to divert required pension contributions to other uses, like providing financial assistance to poor school districts.

This is as bad or worse than any of the accounting shenanigans Wall Street has done. Taxpayers are directly on the hook here and investors in the state’s bonds are being directly misled about the future financial health of the government there. That’s why the SEC got involved here. One wonders why the DOJ is sitting on its hands.

And also: why didn’t the SEC didn’t charge any individuals with fraud? Walsh is on that today in her story:

“Yes, they charged the State of New Jersey with fraud, but there’s no price paid here,” said Lynn E. Turner, a former chief accountant for the S.E.C. who helped with the pension investigation in San Diego. “There’s no fine, and no accountability on the part of any individuals.”

Indeed, while it’s nice that the SEC called this out, it’s dispiriting that there’s little real consequence.

Maybe Jed Rakoff or Ellen Segal Huvelle will get hold of this case.

In the meantime, if the Times won’t toot its horn loud enough on this, I will. Great work.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.