A recent action by the Securities and Exchange Commission (SEC)
against the city of Harvey, IL, a poor city of 30,000 just south of
Chicago, deals with a different sort of fiduciary duty than the
usual government ethics case. In a complaint dated June 24, 2014
(attached; see below), the SEC alleges that the city's comptroller
acted as financial adviser in three bond issues for a hotel development, diverted some of the funds to himself, and also diverted
funds to the city's general fund. The comptroller is acting as
financial adviser for a 2014 bond offering, which the SEC is trying
to prevent through a court restraining order.
The action is based on the city's fiduciary duty to disclose to
investors how bond proceeds will be used, as well as the risks
associated with investing in the city's bonds (but the term
"fiduciary duty" is not actually used in the complaint). This is
part of the SEC's promised crackdown on disclosure failures related to
municipal bonds. Alternatively, the complaint alleges fraud and the
making of false and misleading statements.