SEC closes pay-to-play case against former mayor of Chicago suburb

A federal judge signed off on a consent judgment that brings to a close the Securities and Exchange Commission’s fraud charges against the former mayor of a Chicago suburb caught in a pay-to-play scheme tied to a bond-financed construction project.

In addition to civil securities fraud allegations, former Markham, Illinois, Mayor David Webb, Jr. faced criminal charges related to several bribery schemes including soliciting and pocketing a $75,000 bribe to steer a construction project being financed with proceeds of a $5.5 million 2012 city general obligation bond sale to a certain contractor.

Proceeds of the bond issue financed the acquisition of a roller rink and development of a park. The bonds when issued carried a rating of BBB from S&P Global Ratings but have long since lost their investment grade. The rating now sits at B.

Bloomberg News

Webb came under scrutiny during a discussion of the bond issue at a city council meeting because the seller of the roller rink was the mother of the Markham city attorney. The SEC said that Webb brushed concerns off, saying “I don’t want no one plastering my name saying that I made a deal. I don’t make deals.” The council approved the bond issue by a 3-1 vote.

“Webb gave these assurances despite the fact that he had recently solicited and received the bribe” and that was information that investors would have considered pertinent to their decision of whether to purchase the bonds, the SEC said.

The final consent judgment in the SEC case entered July 26 follows a previously entered partial consent judgment under which Webb partially agreed to a bar on his future participation in any municipal bond offerings. He was enjoined from committing future securities fraud and ordered to pay a not-yet-determined fine and penalty.

The final judgment entered by a U.S. District Court Judge for the Northern District of Illinois found Webb liable for disgorgement of $85,000 and prejudgment interest in the amount of $32,849 for a total amount of $117,849. The judgment was satisfied through the restitution ordered against Webb in the parallel criminal action pursued by the U.S. Department of Justice.

Webb pled guilty to criminal charges and in June received a 24-month prison sentence along with the restitution order. The 12-count indictment on federal honest services wire fraud and willfully filing a false tax return stemmed from alleged bribery schemes from multiple city vendors during Webb’s tenure. He admitted to accepting $300,000 in bribes as part of his plea agreement. Webb also agreed to cooperate in investigations of several contractors that helped lead to convictions.

On the bond scheme, Webb selected the contractor for the park development and signed the design-build agreement on behalf of the city after the contractor wrote a check and deposited the $75,000 into a shell company controlled by Webb, the complaint said. A second check for $10,000 was also deposited to the shell company when the project was nearly complete, the SEC alleged. The city used more than half the bond funds for that park project.

Webb was charged under both Section 17(a)(1) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, both of which make it illegal to “employ any device, scheme, or artifice to defraud.” Webb acted “knowingly or recklessly” in his conduct, the SEC said.

The SEC's Brian Fagel of the Public Finance Abuse Unit supervised the case and was assisted by the U.S. Attorney’s Office and the Federal Bureau of Investigation.

Webb was 69 when the SEC and criminal charges were first announced in late 2017. He was mayor of the 12,000-population city in the southern suburbs of Chicago from 2001 until May of 2017.