The Securities and Exchange Commission announced today that on December 4, 2014, the City of Harvey, Illinois agreed to settle charges stemming from an enforcement action filed in June 2014. The city has consented to the entry of a final judgment which includes undertakings designed to provide significant protections for bond investors.
On June 25, 2014, the SEC obtained an emergency court order in the U.S. District Court for the Northern District of Illinois against the Chicago suburb and its comptroller, Joseph T. Letke, to stop a fraudulent bond offering that the city had been marketing to potential investors. The complaint alleged that the city and Letke had been engaged in a scheme for the past several years to divert bond proceeds from prior bond offerings for improper, undisclosed uses. While investigating Harvey’s past bond offerings, the SEC learned that the city intended to issue new limited obligation bonds. The SEC also learned that the city had drafted offering documents that made materially misleading statements about the purpose and risks of those bonds, while omitting that past bond proceeds had been misused.
The city has agreed to the entry of a final judgment which will enjoin it from committing future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Harvey has agreed to retain an independent consultant and an independent audit firm, and will be prohibited from engaging in the offer or sale of any municipal securities for three years unless it retains independent disclosure counsel. These measures are designed to prevent future securities fraud by Harvey and to enhance transparency into Harvey’s financial condition for future bond investors. The litigation against Letke is pending.
For additional information, see Release No. 2014-122 (June 25, 2014).