By Lisa Lambert and Joan Gralla

WASHINGTON/NEW YORK, Aug 19 (Reuters) – Municipal bond issuers are on high alert after the Securities and Exchange Commission charged the state of New Jersey with fraud for failing to disclose to bond buyers it had underfunded the state’s pensions.

The SEC move on Wednesday was groundbreaking for several reasons. It was the first time the SEC charged a state for violating federal securities laws. New Jersey agreed to settle the case.

It also highlighted the increasing attention the federal government is paying to those who sell municipal bonds, the tax-exempt debt that pay for roads, bridges, schools and hospitals.