Federal Judge OKs Harvey Settlement with SEC

CHICAGO — A federal judge in Chicago has signed off on Harvey, Ill.'s settlement with the Securities and Exchange Commission over charges it misled investors by diverting bond proceeds from their intended use.

The settlement was announced earlier this month and U.S. District Court Judge Amy St. Eve signed off on it Dec. 10.

The SEC's June complaint marked the first instance in which the agency sought an emergency court order to halt a municipal bond offering. St. Eve granted the temporary injunction sought by the agency when it discovered during the course of an investigation into the city's use of past bond issues that it was planning to issue more bonds.

SEC investigators found that Harvey had diverted about $1.7 million over the course of 2008, 2009 and 2010 offerings that were supposed to finance a hotel and conference center. The unfinished project was abandoned. The official statements made no mention of proceeds being diverted.

In the settlement, the city agreed, without admitting or denying the SEC's allegations, to cease violating federal securities laws and to hire an independent consultant and audit firm. The city also agreed to a prohibition on issuing munis for three years unless it uses an independent disclosure counsel for offerings. The choice of disclosure counsel must be acceptable to the SEC, according to the terms of the final judgment filed with the court.

Litigation is still pending against former Harvey comptroller Joseph T. Letke, who is accused of receiving hundreds of thousands of illicit bond proceeds through a years-long scheme. Letke has invoked his Fifth Amendment right against self-incrimination, according to court documents. Letke received "undisclosed payments" from the developer while also receiving city consulting fees.

Letke has come under scrutiny for his consulting role in other south suburban municipalities and agencies like the South Suburban Joint Action Water Agency and is the subject of a separate federal probe.

Officials from the financially stressed city said the settlement will allow it to move forward as its fiscal troubles continue. Payment delinquencies to Chicago for water purchases prompted Chicago to file a lawsuit against the city and last month a Cook County judge said Harvey must pay Chicago $26 million. Harvey operates on a $38 million annual budget. Harvey got behind on its payments to Chicago after using water fee collections to help support operations. The court is expected to rule next month whether to strip Harvey of its management of water fees.

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