Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

15166

SEC obtains court order to halt fraudulent bond offering by City of Harvey, Illinois

RELATED TOPICS​

The Securities and Exchange Commission has obtained an emergency court order against a Chicago suburb and its comptroller to stop a fraudulent bond offering that the city has been marketing to potential investors.

The SEC has filed fraud charges in US District Court for the Northern District of Illinois against the city of Harvey, Illinois, and Joseph T. Letke alleging that they have been engaging in a scheme for the past several years to divert bond proceeds for improper, undisclosed uses. 
 
The SEC’s complaint alleges that the purported purpose of prior bond offerings was to fund the development and construction of a Holiday Inn hotel in Harvey. However without informing investors, Harvey officials diverted at least USD1.7 million of bond proceeds from these offerings to pay the city’s operational costs such as its payroll, and Letke received approximately USD269,000 in undisclosed payments derived from bond proceeds. 
 
While investigating Harvey’s past bond offerings to investors, the SEC learned that the city is intending to issue new limited obligation bonds as early as this week, and draft offering documents make materially misleading statements about the purpose and risks of those bonds while omitting that past bond proceeds have been misused.
 
In response to the SEC’s request for emergency relief, the Hon. Judge Rebecca Pallmeyer conducted an emergency hearing and issued a temporary restraining order preventing Harvey from offering or selling any bonds through 14 July.  At the hearing, Harvey agreed to this 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 8 July.
 
“We moved quickly to stop this city and its comptroller from issuing more bonds under false pretences,” says Andrew J Ceresney, director of the SEC’s division of enforcement.  “We will continue to aggressively pursue municipalities and public officials who raise money through fraudulent bond transactions that harm both investors and residents.”
 
David Glockner, director of SEC’s Chicago regional office, says: “Harvey’s bond investors were misled into believing their money would go toward construction of a Holiday Inn when instead the bulk of it was diverted into Harvey’s general coffers and Letke’s pocket.  Our action has stopped their scheme in its tracks, and we will continue our investigation to determine additional facts surrounding the misconduct.”
 
According to the SEC’s complaint, instead of general obligations bonds that are repaid from the general coffers of a municipality, Harvey’s bond offerings in 2008, 2009, and 2010 were limited obligations bonds that were to be repaid from dedicated tax revenue streams such as Harvey’s hotel-motel tax, sales tax, or incremental tax from the Tax Increment Financing District that the city created for the development and construction of the Holiday Inn project.  Therefore, it was important to bond investors that the bond offerings were consistent with the stated purpose and the money raised was actually used to fund the hotel development, because the amount of funds available to repay the bonds derived from tax revenues would be materially affected by the funding and progress of the project.
 
However, the SEC alleges that Harvey’s bond investors were materially misled about the purpose and risks of the bonds they purchased from the city.  As Harvey and Letke perpetrated the scheme to divert bond-related proceeds, the hotel redevelopment project turned into a fiasco for bond investors and city residents. According to news reports, the proposed Holiday Inn hotel and conference centre stands as a decrepit shell. The hotel’s façade has many holes in it, and the interior of the hotel appears gutted in places with dangling wires and exposed studs. 

Latest News

MSCI has launched MSCI AI Portfolio Insights, writing that it combines generative artificial intelligence “GenAI”..
The Capgemini Research Institute’s World Wealth Report 2024, published today, reveals the number of high-net-worth..
New research from cloud security firm Zscaler reports a disconnect between European company confidence in..

Related Articles

Waves
A joint statement from BNP Paribas Asset Management, Federated Hermes Limited, Mirova, Robeco and Storebrand Asset Management has been published, entitled The urgent need for better ocean-related data to make informed investment decisions...
A joint statement from BNP Paribas Asset Management, Federated Hermes Limited, Mirova, Robeco and Storebrand Asset Management has been published,..
Frozen soap bubble
From the end of this month, the UK’s Sustainability Disclosure Requirements (SDR) regime comes into force which the Financial Conduct Authority says has a simple aim: “Financial products that are marketed as sustainable should do as they claim and have the evidence to back it up.”..
From the end of this month, the UK’s Sustainability Disclosure Requirements (SDR) regime comes into force which the Financial Conduct..
Global ESG Investing
On May 15 Florida’s Republican Governor Ron DeSantis signed legislation that furthers his ongoing campaign to oppose the role of climate change and ESG factors in state policymaking...
On May 15 Florida’s Republican Governor Ron DeSantis signed legislation that furthers his ongoing campaign to oppose the role of..
Trends
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100 million deals announced this month alone...
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by