Court stops Illinois city's planned bond sale

WASHINGTON, June 25 Wed Jun 25, 2014 1:13pm EDT

WASHINGTON, June 25 (Reuters) - The U.S. Securities and Exchange Commission received an emergency court order on Wednesday to keep the city of Harvey, Illinois, from selling bonds this month.

The regulator had rushed to file for the restraining order after it learned of Harvey's plans to issue debt this week. The SEC alleges Harvey and its comptroller misused proceeds from a bond deal for building a hotel and schemed to defraud investors.

On Wednesday, Judge Rebecca Pallmeyer of the U.S. District Court for the Northern District of Illinois held an emergency hearing and then barred the Chicago suburb from selling any bonds through July 14, the SEC said.

The court order also bars the city's comptroller from "incurring any extraordinary expenses beyond reasonable and customary personal and business expenses," according to the SEC.

There will be a hearing on July 8 to consider the SEC's full complaint.

Describing the city's financial condition as "grave," the SEC's enforcement unit had said Harvey would likely misappropriate any funds raised by future bond sales.

By law, issuers in the $3.7 trillion municipal bond market do not have to notify federal regulators of planned sales and it is very rare for the SEC to seek to stop a sale. (Reporting by Lisa Lambert; editing by Matthew Lewis)

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