Former Madison County Treasurer Sentenced for Structuring Property Tax Sales to Reward Campaign Contributors
|U.S. Attorney’s Office December 06, 2013|
The former treasurer of Madison County, Illinois was sentenced to 30 months in prison by the U.S. District Court in East St. Louis, Illinois, on December 6, 2013, for violating the Sherman Antitrust Act, the United States Attorney for the Southern District of Illinois, Stephen R. Wigginton, announced today. Fred Bathon, 58, had pleaded guilty on February 5, 2013, to a violation of the Sherman Antitrust Act for his role in structuring Madison County property tax sales in a way that increased prices and rewarded campaign contributors. In addition to the thirty month sentence, Bathon was ordered to pay a $20,000 fine and will serve two years’ supervised release after his sentence of incarceration.
In imposing sentence, the court noted the impossibility of making the individualized determination of loss as to each victim, which is required by law before the court can impose an order of restitution on a defendant. There were thousands of homeowners who were impacted by the tax auctions, and each homeowner’s situation was legally unique, making calculation of individual losses impossible.
At Illinois tax lien auctions, investors bid to purchase tax lien certificates issued against delinquent tax payers. Investors are supposed to compete to purchase these tax liens by bidding on the interest rate the property owner will be required to pay prior to redeeming the tax lien attached to the owner’s property. The bid opens at no more than the statutory maximum of 18 percent and through a competitive bidding process can be driven as low as zero percent. The bidder offering the least penalty percentage rate, i.e., the bidder who is willing to allow the owner to redeem his property for the smallest penalty, is allowed to purchase the tax lien. As such, competitive bidding benefits financially distressed homeowners by reducing the amount of money that they have to pay to save their home from foreclosure; however, that same system reduces the profit made by tax buyers. Tax buyers prefer to receive high interest rates, which corresponds to higher profits.
For the tax sales conducted in 2005-2008, Fred Bathon structured the tax sales in a way that eliminated competitive bidding and allowed the tax buyers to engage in price fixing by only bidding the statutory maximum interest rate of 18 percent. In addition to awarding properties at non-competitive interest rates, Bathon also utilized a seating chart to ensure that his largest campaign contributors were recognized by the auctioneer as the winning bidder.
By 2007 and 2008, the bid rigging and price fixing was so pervasive that distressed homeowners were charged the statutory maximum interest rate on nearly every property tax lien sold. During the tax auction occurring November 14-15, 2007, 2,549 out of 2,574 property tax liens were awarded to bidders for the statutory maximum interest rate of 18 percent, which represented 99.03 percent of the property tax liens auctioned. During the tax auction occurring November 13-14, 2008, 2,290 out of 2,364 property tax liens were awarded to bidders for the statutory maximum interest rate of 18 percent, which represented 96.86 percent of the property tax liens auctioned.
Under Illinois law, Bathon will also forfeit his entire public pension as a result of his conviction. The Illinois Pension Code provides that “[n]one of the benefits herein provided for shall be paid to any person who is convicted of any felony relating to or arising out of or in connection with his or her service as a member.” This provision of Illinois law is often referred to as the “Ryan Rule,” following the Illinois Supreme Court’s decision in Ryan v. Bd. of Trustees of Gen. Assembly Ret. Sys., 236 Ill. 2d 315, 924 N.E.2d 970 (2010), which determined former Governor George Ryan forfeited all his public pension benefits following his conviction on federal corruption charges. The state pension forfeiture provision reaches all public pension benefits, including those earned while serving in public positions with no connection or nexus to the federal conviction.
The investigation was conducted through the Metro East Public Corruption Task Force by agents from the Internal Revenue Service and the Federal Bureau of Investigation. The case was prosecuted by Assistant United States Attorneys Steven D. Weinhoeft and Norman R. Smith.