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Published: Friday, November 6, 2009 at 10:45 p.m.
Last Modified: Friday, November 6, 2009 at 10:45 p.m.

The federal Securities and Exchange Commission is investigating possible fraud by the Florida State Board of Administration, the agency that manages $132 billion in public investments for hundreds of local governments and 1 million current and future retirees.

The federal investigation centers on whether the state and three Wall Street giants misled the public about the risk and liquidity of some of the SBA’s investments.

The three firms that sold the troubled securities to the state are JPMorgan Chase, Credit Suisse and the now-defunct Lehman Brothers.

The SBA acknowledged it was part of an SEC preliminary inquiry last year but did not make public that the federal agency had elevated it to a formal fraud investigation.

The SEC issued an order directing a formal investigation July 31, 2008, but the SBA did not make it public. The information was included in documents the St. Petersburg Times received Thursday in response to a public records request of the SBA.

The documents indicate the regulators want to know if the state investment agency and the three Wall Street firms misled the public about the risky nature of securities that plummeted in value and led to the implosion of an SBA-managed local government pool in late 2007.

Hundreds of cities, counties and school districts use the local pool as a checking account to pay bills and payrolls. They began yanking billions from the SBA after revelations that the agency was holding shaky securities tied to the subprime market.

The federal investigation order says that the SBA and the three firms “may have been or may be” involved in a scheme to defraud by making false statements about the risk and liquidity of investments purchased by the local pool and other SBA-managed funds.

Jack Kiefner, a St. Petersburg securities lawyer who formerly worked for the SEC, said Thursday’s disclosures show that the investigation has gone “beyond a mere informal inquiry” and is unusual.

“I would say this is very rare” for a state agency to be a possible target of an SEC fraud investigation, Kiefner said.

SBA spokesman Dennis MacKee said the agency made the investigation public as early as March 2008 but did not tell even the agency’s three trustees – Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum – about the formal SEC order of investigation.

“As the SBA had agreed to hold the order confidential, the order was not provided to the trustees at that time,” MacKee said.

Spokesmen for the trustees said they were briefed and updated on the investigation.

Kiefner, the former SEC attorney, said that although confidential under SEC rules, the state could have – and should have – made the formal investigation public.

Spokesmen for JPMorgan, Credit Suisse and the Lehman bankruptcy trustee declined to comment Thursday.