A daily look at legal news and the business of law:
New Jersey Settles SEC's Fraud Suit
In the current struggling economy, state budgets are a mess, and New Jersey's is in famously bad shape. One sign of the state's financial mismanagement: The Securities and Exchange Commission sued New Jersey for fraud. It was the first time the SEC had ever sued a state for securities fraud, although it may be the start of a series, as other states are under investigation. But for the Garden State, the SEC issue is in the past: It immediately agreed to settle the suit.
The SEC says that when New Jersey issued $26 billion in bonds between 2001 and 2007, it portrayed its pension funds as adequately funded, which they weren't (and aren't). In order to meet its pension obligations, New Jersey will have to raise taxes, cut services, or (theoretically) refuse to pay bondholders, information investors weren't adequately given. Three governors presided in New Jersey during those years: Republican Donald T. DiFrancesco, and Democrats Jim McGreevey and Jon Corzine. The fraud started when in 2001, New Jersey increased pension benefits to teachers and state workers but didn't put the money in to fund them. The accounting gimmick used to hide the problem was exposed by The New York Times in 2007.
Despite the SEC's action, so far the market doesn't seem concerned, perhaps because New Jersey has never missed a bond payment and its treasury department said "it never will." The Wall Street Journal notes that during the three-year SEC investigation that lead to the charges, neither the value of the bonds nor the state's credit rating was affected.
The SEC's order states "This matter involves New Jersey's violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act..." however, New Jersey has neither admitted nor denied the findings in the order. Still, New Jersey agreed to settle and promised not to commit any future violations. The SEC didn't seek a fine, nor did it charge any individuals. Instead, the SEC said it was satisfied with New Jersey's cooperation and remedial steps it was taking.
California Furloughs Workers
California's budget woes are the worst in the nation, and Gov. Arnold Schwarzenegger has been battling for the right to furlough state workers to save money. Now, the California Supreme Court has agreed he can while it reviews his plan, and lifted a lower court's injunction blocking the furloughs. Starting Friday 150,000 state workers will be sent home without pay, reports Bloomberg.
Judge Signs Off on Barclays Deal
A day after questioning the adequacy of the settlement between the Justice Department and Barclays (BCS) resolving charges Barclays violated economic sanctions, Judge Emmet Sullivan approved the pact. He held an hourlong hearing on the pact and apparently was satisfied with the answers to his questions.
And in the Business of Law
• More evidence law graduates from the class of 2012 will be able to find jobs: California schools report an increase in recruiting by firms, and four large Texas firms announce plans for bigger 2011 summer classes. Although the future job market is looking a little brighter, the current one could hardly get worse. DLA Piper has announced half of its 2009 summer associates won't start working for it until January, some four months later than usual, while the other half will be delayed until January 2012. The ones deferred the longest will receive a $5,000 per month stipend to do pro bono work, which sounds good until you realize it's less than 40% of what they'd have earned had they started their real jobs.
• Finally, the ultimate sign of the times: A 2007 summer associate sues the prestigious San Francisco firm that hired her, deferred her, and ultimately rescinded her job offer in 2009. Sarah Martinez contends, among other things, that while her job offer was deferred, Howard Rice continued to actively recruit and hire other people, particularly white males, and her suit includes discrimination claims as a result. The core problem, the Recorder explains, is that, due to the way new law graduates are hired, by remaining loyal to Howard Rice and ceasing interviewing with other firms, Martinez lost the opportunity to work for any big firm. Her lack of opportunity at such firms is inherent in the decision to sue: Whatever vanishingly small chance she had once the job offer was rescinded is gone now.