CHICAGO (CN) - The SEC on Wednesday obtained an emergency court order against the Chicago suburb of Harvey, claiming the city and its comptroller offered a fraudulent bond offering.
The SEC sued the city and Joseph T. Letke, claiming that "(f)rom 2008 to the present, Harvey and its Comptroller, Letke, have engaged in a scheme to divert bond proceeds for improper purposes, including undisclosed payments to Letke. As part of the scheme, Harvey made misrepresentations and omissions to investors about how bond proceeds would be used and the risks associated with investments in Harvey's municipal bonds."
Harvey, pop. 26,000, has been sued repeatedly on allegations of corruption and police brutality. Sources told Courthouse News that it is a conduit of the heroin trade.
The complaint states: "Defendants Harvey and Letke engaged in a fraudulent scheme, and Harvey made materially false and misleading statements, in connection with municipal bond offerings by Harvey to bond investors for approximately $6 million in 2008 ('2008 Bond Offering'), for approximately $3 million in 2009 ('2009 Bond Offering') and for approximately $5 million in 2010 ('2010 Bond Offering').
"The purported purpose of the 2008, 2009 and 2010 Bond Offerings was to provide funding to develop and construct a Holiday Inn Hotel in Harvey ('Hotel Redevelopment Project'). These bonds were not general obligation bonds and were not to be repaid from the general coffers of Harvey. Instead, they were limited obligation bonds. Depending on the particular bond offering, the bonds were to be repaid from dedicated tax revenue streams such as Harvey's hotel-motel tax and sales tax revenue or incremental tax from the Tax Increment Financing District ('Harvey TIF District') Harvey created for the development and construction of the Hotel Redevelopment Project.
"Thus, it was important to bond investors that money raised from the bond offerings, consistent with the stated purpose, was actually used to fund the hotel development, since the amount of funds to repay the bonds derived from tax revenues would be materially affected by the funding and progress of the Hotel Redevelopment Project.
"Yet, unbeknownst to bond investors and contrary to representations in Official Statements and other documents connected to the 2008, 2009 and 2010 Bond Offerings, from in or about 2009 through in or about 2011, Harvey officials improperly diverted at least $1.7 million of bond proceeds from these offerings into the general operation accounts of Harvey to pay the City's operation costs, including payroll. Letke, Harvey's comptroller, also received approximately $269,000 in undisclosed payments derived from bond proceeds and other proceeds earmarked for the Hotel Redevelopment Project. Bond investors were thus materially misled about the purpose and risks of the bonds they purchased from Harvey
"During the relevant period, defendant Letke was the Comptroller of Harvey, for which he and a firm he controlled, Letke & Associates, Inc., received $1,080,403. In addition, Defendant Letke and his firm Letke & Associates served as a financial advisor to Harvey in connection with the 2008, 2009 and 2010 Bond Offerings."
U.S. District Judge Rebecca Pallmeyer on Wednesday issued a temporary restraining order preventing Harvey from offering or selling any bonds through July 14, the SEC said.
Harvey agreed to the restriction. "Additionally, to prevent dissipation of Letke's ill-gotten gains, the court order prohibits Letke from incurring any extraordinary expenses beyond reasonable and customary personal and business expenses. The court scheduled an additional hearing for July 8," the SEC said in a statement.