Bethany Krajelis Jun. 25, 2014, 4:42pm

A federal judge has temporarily barred the City of Harvey from selling municipal bonds.

At an emergency hearing today, U.S. District Judge Rebecca R. Pallmeyer granted, in part, a motion for a temporary restraining order filed Wednesday by the U.S. Securities and Exchange Commission.

Pallmeyer’s order takes effective immediately and also bars Joseph T. Letke, the city’s comptroller, from incurring “any extraordinary expenses beyond reasonable and ordinary living and business expenses between now and July 8.”

Court documents show the city agreed to halt any bond sales and that a July 8 hearing has been set in the matter.

The judge's emergency order comes a day after the SEC lodged a federal suit against the south suburban city and Letke, accusing them of diverting at least $1.7 million of bond proceeds earmarked for a hotel redevelopment project.

The SEC claims they misused proceeds raised from investors in bonds issued by the municipality between 2008 and 2010, and provided potential investors false and misleading statements.

According to the federal agency, the city and Letke “have engaged in a scheme to divert bond proceeds for improper purposes, including undisclosed payments to Letke,” and to the city to cover its payroll.

Based on the alleged scheme it laid out in its complaint, as well as its belief the city was going to try sell new bonds as soon as this month, the SEC filed an emergency motion along with its suit to block any bond sales.

“[T]hrough a pattern of egregious misuse of bond proceeds, Harvey has demonstrated that it cannot be trusted on issues relating to municipal bond issuances,” the agency said in its emergency motion.

The agency is being represented by Chicago attorneys Eric M. Phillips, Eric A. Celauro and Sally J. Hewitt with the SEC.

Court records show attorneys Tiffany Mary Ferguson and Rachel C. Steiner of Pugh, Jones & Johnson P.C. are representing the city.

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