A federal judge issued an emergency order Wednesday to stop South suburban Harvey from marketing a bond sale to potential investors after the Securities and Exchange Commission claimed the city had a history of fraudulently diverting funds.
U.S. District Judge Rebecca Pallmeyer issued a temporary restraining order preventing officials from offering or selling any bonds through July 14.
The SEC filed a complaint against the city and its comptroller, Joseph T. Letke, claiming they have been diverting money from bond sales for improper and undisclosed uses for several years.
The city claimed that prior bond sales would fund construction of a Holiday Inn but instead diverted at least $1.7 million for other uses, such as payroll costs, while Letke received almost $270,000 in undisclosed payments from the proceeds, according to the complaint.
"Our action has stopped their scheme in its tracks, and we will continue our investigation to determine additional facts surrounding the misconduct," David Glockner, director of SEC's Chicago Regional Office, said in a written statement.
The SEC said the city planned to issue new bonds as early as this week but claims that draft documents contained misleading statements about how the money would be used and did not disclose that past proceeds were misused.
City officials would not comment on the allegations, but spokesman Sean Howard said officials will "cooperate fully" with the order, which also limits the amount of money Letke can spend on personal and business expenses.
The SEC said the diversion of money "turned into a fiasco for bond investors and city residents," and that the proposed hotel and conference center "stands as a decrepit shell."