SEC accuses City of Harvey, comptroller of fraud - New York News

SEC accuses City of Harvey, comptroller of fraud

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HARVEY, Ill. (Sun-Times Media Wire) -

South suburban Harvey is running out of money — fast.

Its own comptroller said so.

Joseph Letke said the city’s bills could go unpaid as soon as next month. Bond holders could wind up empty-handed in August. The city is in a financial “crisis,” he said in an April memo.

He also said in the memo that "in July 2014, Harvey would be unable to pay its bills." It appears to confirm all the grim warnings about Harvey that Cook County Sheriff Tom Dart has been loudly sounding for several years.

Dart met with South Suburban police chiefs this morning about how to cope with the financial collapse of a town with 25,000 residents.

"No, [we don't have 70 officers to spare that can go to Harvey]. We will be stretched beyond our means. There will be a lot of juggling we'd have to do to pull this off," said Dart.

Seven years after a similar financial crisis in south suburban Ford Heights, Dart has 20 Sheriff's Police still patrolling the impoverished town. Harvey, though, is five times bigger than Ford Heights.

Dart has loudly complained about Mayor Eric Kellogg's refusal to release any audited financial records, even as funds involved in a multi-million dollar hotel redevelopment project and other local boondoggles indicated Harvey was in deep trouble. A state law requires audits in every muncipality, but it's rarely enforced.

"We need to have a higher level of scrutiny on towns' finances particularly, so we aren't sitting there waiting for there to be nothing left," added Dart.

Letke should know.

Between 2008 and 2010, Letke and his firms made $1.627 million to serve as Harvey’s comptroller, to do bookkeeping and to give financial advice, authorities said.

But that’s not all. Now Letke is accused of pocketing another $269,000 in “undisclosed payments” from the developer of a Holiday Inn Hotel in the south suburb. The U.S. Securities and Exchange Commission slapped Letke — and the City of Harvey itself — with fraud charges in a complaint announced Wednesday, the Chicago Sun-Times is reporting.

Letke, 55, of Frankfort, and the city used at least $1.7 million in bond proceeds from the hotel project to improperly pay for the basic costs of running the city like making payroll, according to the SEC.

Others appear to have profited from the alleged scheme, as well. For example, the SEC said $100,000 in bond-related cash made its way in 2009 to an unidentified woman who “had no apparent connection” to the hotel project. It allegedly did so with help from Letke and “another Harvey official.”

On Wednesday, with another Harvey bond offering in the works, the SEC’s attorneys persuaded U.S. Judge Rebecca Pallmeyer to halt all bond offerings there for now. A Harvey spokesman said the city would cooperate.

Letke himself could not be reached to answer questions about the complaint. His attorney declined to comment.

The allegations against Letke and the city stem from three bond offerings — one in 2008 for $6 million, one in 2009 for $3 million, and one in 2010 for $5 million — meant to fund the hotel’s development.

Harvey Hotel Properties led the development, according to the SEC’s complaint. Satish A. Gabhawala is listed as its agent. He could not be reached for comment.

Almost immediately, cash from the hotel-development bonds wound up being spent in ways other than what was promised, according to the SEC. Then, in February 2009, the city allegedly used $290,000 from a TIF district fund to make payroll after a Letke employee warned him the city might “have to dip into bond money.”

Later that year, Letke “and another Harvey official” sent $1.5 million to an escrow account that belonged to Letke’s firm, according to the SEC. Letke’s firm allegedly then paid the hotel developer $1 million.

That was followed by a $70,000 “undisclosed” payment by the developer to Letke, and a $100,000 payment by the developer to the unidentified woman not connected to the hotel project, according to the SEC.

Harvey would go on to use another $600,000 in bond proceeds to pay for general expenses in August 2009, according to the complaint, and another $300,000 for general expenses in February 2010.

In October 2011, Harvey’s mayor allegedly signed a request to move $959,000 in bond proceeds to the city’s general fund. He certified at the time the money was being used for costs related to the project, the SEC said.

Then the city went ahead and used that money to pay for general operations, according to the feds.

FOX 32's Mike Flannery contributed to this report.

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