The SEC has gotten an emergency court order against the city of Harvey. The order puts an end to a bond offering that the Chicago, Illinois suburb was promoting. Also named in the order is Joseph T. Letke, the city’s controller.
The regulator contends that Harvey and Letke allegedly took part in a securities scam to use proceeds from the bonds for undisclosed, improper uses. The bond offerings were supposed to pay for a new Holiday Inn. Instead, officials purportedly took at least $1.7M of the proceeds to cover operational costs for the city. With the temporary order, Harvey is not allowed to sell or offer any bonds through the middle of July.
Per the SEC complaint, Harvey’s bond offerings from ’08-’11 were limited obligations bonds. The bond offerings had to be used for their intended purpose. Also the money that was raised needed to go toward the construction of the hotel. This is because funds that were supposed to pay back the bonds came from tax revenues that would be impacted by the progress and funding of the project. News reports reveal that the proposed Holiday Inn hotel and conference center have yet to be finished, with the hotel’s facade appearing gutted in certain places.
The agency also says that offering documents included statements that were materially misleading about the risks and purposes of new limited obligations bonds that were to be issued just last week. Letke is accused of getting about $269,000 in undisclosed payments from the bond proceeds. The SEC is alleging that the city and Letke violated the Securities Act of 1933, the Securities Exchange Act of 1934 and Rule 10b-5.
Read the SEC Complaint (PDF)
SEC accuses City of Harvey, comptroller of fraud, Chicago Sun-Times, June 25, 2014
Securities Act of 1933 (PDF)
Securities Exchange Act of 1934, Cornell.edu
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