U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23543 / May 19, 2016
Securities and Exchange Commission v. Eric J. Kellogg, Civil Action No. 16-cv-5384 (N.D. Ill., filed May 19, 2016)
Mayor in Illinois Settles Muni Bond Fraud Charges
The Securities and Exchange Commission today announced that the mayor of Harvey, Ill., has agreed to pay $10,000 and never participate in a municipal bond offering again in order to settle fraud charges.
The SEC alleges that Eric J. Kellogg was connected to a series of fraudulent bond offerings by the city. Investors were told that their money would be used to develop and construct a Holiday Inn hotel in Harvey, but instead city officials diverted at least $1.7 million in bond proceeds to fund the city's payroll and other operational costs unrelated to the hotel project.
According to the SEC's complaint filed in the U.S. District Court for the Northern District of Illinois, Mayor Kellogg exercised control over Harvey's operations and signed important offering documents the city used to offer and sell the bonds. The SEC's complaint charges Kellogg with control person liability under Section 20(a) of the Exchange Act for Harvey's violations of Section 10(b) and Rule 10b-5 of the Exchange Act.
Kellogg agreed to settle the charges without admitting or denying the SEC's allegations. Kellogg consented to the entry of an order: (a) permanently enjoining him from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder; (b) prohibiting him from participating in an offering of municipal securities, including engaging in activities with a broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce the purchase or sale of any municipal security, other than for his personal account; and (c) imposing a civil penalty of $10,000. The settlement is subject to court approval.
The SEC's investigation was conducted by Sally J. Hewitt, Eric A. Celauro, and Brian D. Fagel of the Public Finance Abuse Unit, with assistance from Scott J. Hlavacek and Eric M. Phillips of the Chicago Regional Office.