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Big theft, little city

Dixon’s former comptroller is accused of stealing $53 million from Ronald Reagan’s hometown

by Kevin McDermott

Even the most optimistic citizens of Dixon don’t think they’re ever going to get their $53 million back.

At this point, they just hope they’ll at least get their pound of flesh.

“The citizens are anxious to see what kind of sentence she gets” if she’s convicted, says Mayor Jim Burke, referring to his city’s former comptroller, Rita Crundwell. “There isn’t a day that goes by when someone doesn’t call and say, ‘If she gets off with a slap on the wrist ...’”

By now, the story is familiar throughout Illinois and the nation, not to mention within the monied world of show horses: Crundwell — long-known locally as a quiet public servant with a surprisingly successful horse-breeding operation on the side — stands accused of what might be the biggest municipal embezzlement, per capita, in the history of municipal embezzlements.

Federal officials allege that since late 1990, Crundwell, 59, siphoned off city funds equaling about $3,300 for every man, woman and child currently residing in Dixon.

“It’s just unbelievable. It’s massive. It’s outrageous,” says Christopher Marquet, CEO of Marquet International, a security consulting firm based in Boston that specializes in employee misconduct. “It is, as far as we can tell, the largest municipal embezzlement case in United States history.”

Crundwell has pleaded not guilty to allegedly using those millions to build a world-class show-horse breeding operation and fund a lavish lifestyle of houses, vehicles and jewelry — all while her town struggled to pay its bills and froze salaries of her fellow public employees.

“It’s amazing it took so long to get discovered,” says Marquet. “There was nobody at the switches.”

The modest but neat northern Illinois city of 16,000 has been known until now primarily as the hometown of Ronald Reagan. In a bigger place, Crundwell’s alleged crime might be just an interesting scandal. But in Dixon, it’s personal.

“This was a local person who went to the local schools. It was a disappointment,” says Republican state Sen. Tim Bivens, who lives in Dixon. “People put a lot of trust in each other.”

Among the concerns of locals is that months after her arrest on a single federal charge of wire fraud, Crundwell remains free on a $4,500 recognizance bond while a typically slow-moving federal prosecution process unfolds.

“John Q. Public has a hard time understanding how a person accused of stealing $53 million dollars of public money is free on a recognizance bond,” says Burke, the mayor.

Locals are so worried about the possibility that Crundwell won’t do significant federal prison time that Lee County State’s Attorney Henry Dixon on September 20 announced a 60-count grand jury indictment, seemingly stepping over federal officials.

“There is a great deal of talk in the community. People are concerned that the feds have not charged her with additional offenses,” says Dixon, explaining his decision to move forward with state charges. He cleared the move with federal prosecutors first and has agreed to hold off on taking further action until the federal case plays out.

U.S. prosecutors have indicated that the list of federal charges will grow, after announcing a detailed indictment in May that accuses Crundwell of a vast and complex scheme of skimming city money for two decades.

The numbers laid out in the federal indictment are staggering. Prosecutors allege that between December 18, 1990, and her arrest in April of this year, Crundwell used her unelected public position to steal “more than $53 million” — or almost a third of the city’s entire current $9 million annual budget, year after year, for more than 20 years.

At the same time the government announced its criminal indictment, it filed a civil suit seeking control over Crundwell’s assets.

Those assets included more than $224,000 in cash; two sprawling horse farms in two states; her palatial brick ranch-style home on the edge of Dixon, replete with a horse statue in front; two other homes, including one in Florida; a $2 million luxury mobile home; a 1967 Corvette roadster; a pontoon “pleasure boat”; and 311 quarter horses she owned at the time of arrest, plus expected foals in the ensuing months.

“The government is pursuing both criminal and civil forfeiture proceedings to ensure that every available tool is being used to recover proceeds of the alleged fraud in order to recoup as much money as possible for the City of Dixon, its residents and taxpayers,” Patrick Fitzgerald, then-U.S. attorney for the Northern District of Illinois, said in a May 1 public statement that accompanied the government’s indictment.

The proceeds were tied up largely in her horses, which included 52 world champions at her ranches in Dixon and Beloit, Wis.

In fact, the horses were primarily how the townspeople explained to themselves why Crundwell, an $80,000-a-year city employee, could afford the lifestyle she lived. The assumption was that the horses provided her riches — and not vice versa.

“It’s not like Rita showed up at City Hall in fur coats,” says Emily Coleman, the Dixon reporter for Saux Valley Media, which publishes the Dixon Telegraph newspaper. “She looked just like anyone else in town.”

For those who got a closer look at her lifestyle, Coleman says: “I think they just assumed that she was a world-champion breeder, and that that translates into money. Of course, anyone in the horse world will tell you that’s a false assumption.”

Quarter horses of the caliber Crundwell raised can fetch six figures each, and one of hers sold at auction in September for $775,000. Her success at raising them made her a huge name in the horse industry, where her arrest was if anything an even bigger story than it was in the political world.

A series of auctions of Crundwell’s horses and other items conducted by federal officials in September fetched about $5 million, minus the considerable expense the government took on in caring for the animals. The almost 3,000 bidders who packed into Crundwell’s Dixon-area farm for a weekend of auction in late September presumably also contributed something to the town’s economy.

Crundwell didn’t fight the government seizure of her assets. The auction income, plus cash and other assets that were seized, all will go back to Crundwell if she isn’t convicted, and much of it will go to the town if she is.

Among attendees at one of the auctions was Heather Kraus, a Rockford-area resident who made the trip with her daughter to Dixon to watch the liquidation at Crundwell’s farm, mainly out of curiosity.

“It’s amazing what millions of dollars can buy you and how fast it can disappear in two days,” Kraus told the Dixon Telegraph. “I think that’s what we’re here to see, all this money go away in two days.”

Crundwell’s unwitting accomplice, prosecutors allege, was the state of Illinois.

The state’s well-publicized status as a deadbeat government, routinely failing to provide the tax revenue it owes to cities, schools and other local entities, allegedly made it easy for Crundwell to explain why Dixon was always short of money. Her all-too-believable story, Dixon officials say, was that Springfield was stiffing them.

Prosecutors allege that Crundwell, as city comptroller, actually was receiving much of the money owed to Dixon from Springfield, then siphoning it into a private account of her own that was designed to look like a city account. From there, she would use the money for her own purposes, allegedly purchasing luxury homes, vehicles, jewelry and horses.

“... [I]n order to conceal her fraudulent scheme, defendant falsely told the Mayor and members of the City Council for the City of Dixon that the State of Illinois was late in its payments to the City of Dixon,” alleges the federal indictment, “when in fact, as defendant already well knew, she had fraudulently transferred those funds ... for her own use.”

The antiquated format of the city government might have contributed to the problem. Dixon still operates under a century-old commission form of government, in which the city council members divide up their jurisdictions by topic (public health, streets, finance) rather than by geographic area. Unlike today’s more common city manager form of government, the commissioners are expected to be not just representatives of the people but experts in those technical fields — and they’re not.

One thing a more modern, professional city system might have fostered was an understanding of the dangers in how the city’s financial oversight system was structured. Which is to say, it wasn’t.

Modern public accounting practices call for different aspects of finances to be put under the control of multiple people, so no one person can receive, spend, transfer or otherwise control the money without the participation of others. Dixon had no such safeguards. Crundwell, holding the titles of both comptroller and treasurer for Dixon, had sole power over the city’s finances, receiving incoming funds, transferring the money as needed, paying bills and even collecting the city’s daily mail.

“That’s the fundamental flaw: You have one person in charge of all the finances,” says Marquet, the security consultant.

If a person in that position is inclined to steal, he says, “there’s really nothing to stop them.”

Marquet says embezzlement stemming from one-person control over finances is sometimes seen in small businesses, nonprofit organizations and other small entities that “rely on one bookkeeper” because there just aren’t other staff available. “It is, fortunately, unusual” for an American city to have a system like that today, he says.

Dixon has since revamped its system, with multiple-personnel control over the money, a stringent auditing system and other modern separation processes.

And the whole mishap has caused other communities to do some fiscal soul-searching. “A lot of communities are looking at how they’re doing the books now, making sure they have the right controls,” says Bivens, the state senator. “That’s a good thing.”

The eight-page federal indictment handed up May 1 alleges that in December 1990, Crundwell, who had held her post for the previous seven years, set up a bank account titled the “reserve sewer capital development account,” or “RSCDA,” which was made to look like a city account but which she could access herself.

When state funds arrived for the city, Crundwell allegedly would funnel some into the RSCDA account — including the municipality’s 1 percent “share of sales tax, local share of income tax, non-home rule sales tax, personal property replacement tax, motor fuel tax, local share of state use tax, and simplified municipal telecommunications tax,” alleges the federal indictment.

Crundwell then allegedly “used the money to pay for her own personal and private business expenses, including horse farming operations, personal credit card payments, real estate and vehicles,” federal prosecutors claimed in their public statement accompanying the indictment.

The federal indictment claims she went to extremes to keep that control away from other city officials.

“. . . [I]n order to conceal her fraudulent scheme, defendant would pick up the mail for the City of Dixon, including the bank statements for the [phony] account, to prevent other employees of the City of Dixon from learning about the existence of the ... account,” states the indictment. “Whenever defendant was on vacation, [she] asked a relative to pick up the mail for the City of Dixon and to separate any of her mail ... from the rest of the City of Dixon’s mail.”

Crundwell’s attorney, Paul Gaziano, declined to comment.

It was during one of Crundwell’s absences, in October 2011, that the alleged scheme unraveled. While Crundwell was on vacation, City Clerk Kathe Swanson reviewed the city’s accounts. She came across one for almost $800,000 that neither she nor Burke recognized.

Burke — the third mayor to preside over Crundwell’s tenure — quietly contacted the FBI, who told him not to let on to Crundwell that anything was amiss while they conducted their investigation.

Agents tracked Crundwell’s financial activities in the subsequent months. On April 17, they arrived at her City Hall office and escorted her out in handcuffs. She was freed on the recognizance bond the next day.

“I literally became sick to my stomach,” Burke would later tell a packed meeting of townspeople, after the allegations became public. “I hoped my suspicions were all wrong.”

Crundwell’s next court date in her federal case is set for November 14.

Kevin McDermott is a political reporter for the St. Louis Post-Dispatch.

Illinois Issues, November 2012

 

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Photograph courtesy of the American Quarter Horse AssociationRita CrundwellFormer Dixon Comptroller Rita Crundwell with one of her horses.