The State of New Jersey settled claims that it fraudulently misled municipal-bond investors while underfunding the state’s two biggest pension plans in the first Securities and Exchange Commission case to target a state.

New Jersey consented to a cease-and-desist order, the SEC said in a statement today. Documents for more than $26 billion in bond offerings from 2001 to 2007 “created the false impression” that the Teachers’ Pension and Annuity Fund and the Public Employees’ Retirement System were adequately funded, masking the fact that the state couldn’t make contributions without raising taxes or cutting services, according to the SEC’s statement.

“All issuers of municipal securities, including states, are obligated to provide investors with the information necessary to evaluate material risks,” SEC Enforcement Director Robert Khuzami said in the statement. “The State of New Jersey didn’t give its municipal investors a fair shake, withholding and misrepresenting pertinent information about its financial situation.”

New Jersey didn’t admit or deny wrongdoing in the settlement, the SEC said. The regulator said it considered the state’s cooperation and “certain remedial acts” in reaching the accord.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.

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