Village expects to recover $600K from investment fraud

Village Manager Pavlicek says it may take time

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Bob Skolnik

Contributing Reporter

Just over $600,000 of the village of Oak Park's money is now frozen and in limbo because of alleged fraud involving a pooled investment fund that invests money for Illinois local governments.

The Illinois Metropolitan Investment Fund, known informally as IMET, invested in repurchase agreements in which the collateral turned out to be worthless. IMET's Convenience Fund, which is a kind of money market fund for municipalities, has lost about $50 million because of the fraudulent repurchase agreements purchased. The repurchase agreements, known as repos, were represented to IMET as being backed by guarantees from the U.S. Department of Agriculture (USDA), but those guarantees turned out to be forged.

Over $50 million from IMET's Convenience Fund was put into a restricted account on Sept. 30 to cover the loss. Oak Park's share of that amount is $601,438, said Village Manager Cara Pavlicek, who noted that ultimately the village expects to get its money back as the IMET seeks to recover its investment in the repurchase agreements. IMET invested in the repurchase agreements backed by loans made by First Farmers Financial, a lender in Florida. In September, IMET learned that First Florida defaulted on the loans backing the repurchase agreements and that the USDA guarantees were forged, according to a fact sheet on the IMET website.

First Farmers CEO Nikesh Patel was arrested on Sept. 30 and charged with falsifying loan documents.

Pennant Management, a Milwaukee-based money manager, created the repurchase agreements.

Pavlicek said IMET and Pennant should have insurance to cover losses due to fraud and that IMET will seek to go after Patel's personal assets to cover the loss.

"We expect to be made whole," Pavlicek said. "I think the question and the unknown is the time frame in which both the insurance as well as the recovery occur, so it wouldn't be unusual for this to take a significant amount of time. But we certainly don't just say, 'Oh well, we lost this money.' That's not an acceptable option. Those are the village's funds and our expectation is that they diligently pursue their litigation and recover the funds and return them to us."

According to an IMET fact sheet, "IMET is evaluating potential claims and recoveries against all potentially responsible parties involved in this matter."

Oak Park used IMET's Convenience Fund as a place to park short-term cash on hand. Just over $19 million was invested in IMET at the time. In the wake of the fraud, the village pulled all but the frozen $600,000 out of IMET and invested its money in the Illinois Fund, designed to help local governments invest their short-term cash balances. The Illinois Fund is run by the Illinois Treasurer's Office.

Pavlicek said the village of Oak Park had invested funds with IMET since 2000, adding that she first learned of the problem with IMET on Nov. 10. She noted that the village's finance director, Craig Lesner, learned of the problem on Nov. 5. Pavlicek notified the village board in mid-November. She made a public announcement about the frozen money at the Dec. 1 village board meeting to let the public know. The Nov. 17 village board meeting was already put together so she waited until the Dec. 1 meeting to make the public announcement.

The frozen $601,438 should not have any noticeable short-term impact on the operations of Oak Park village government.

"Our total municipal budget is $124 million, so when there are funds that are due but unavailable it certainly changes the financial position, but on a day-to-day basis, that's a relatively small percentage of our total operation," she said. "I certainly don't want, in three or four years in an annual audit, to be taking a loss of $600,000. This is the public's money. It is significant and it is important. As a percent of overall operations, it is a small percent, but it doesn't mean it's acceptable."


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Reader Comments

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Mose from Oak Park, Illinois  

Posted: December 11th, 2014 12:57 PM

Gobs and gobs but too much gobbledlygook, John. I don't know about your experience in dealing with Village Hall but try to get to a look at the TIF books and expect to be denied to see exactly how $100,000,000 of our tax dollars have and are being spent. You say residents and taxpayers are not entitled to know. Open and honest government is good and several board members offered a campaign promised they would seek greater transparency and accountability. Why say that if it's not an issue?

John Q  

Posted: December 11th, 2014 12:32 PM

If you think this is bad...don't move because you'll be in for a treat. Believe it or not there are several towns not covered by local papers so their residents only find out about shootings and robberies etc. If it makes the news. Several do not post meeting minutes and agenda despite it being law...and I'm not even talking commissions I'm village board meetings. Transparency is not staff devoting half of their work day to debating with us over issues. OP is actually transparency gone wrong.

John Q  

Posted: December 11th, 2014 12:25 PM

People here are so spoiled and so entitled it's frightening. Like OP or not one word to shy away from is transparency. When people say OP isn't transparent it is hard to believe it is someone who has ever worked in public service. I would love to hear which municipalities are MORE transparent than OP. We have goobs and gobs of information available and what we don't have available we can get by simple request. Im waiting on two simple FOIAs from another town as we speak. Weeks response.


Posted: December 10th, 2014 10:42 PM

Its always good to hear explanations from the Wizard of Oz

J from Oak Park  

Posted: December 10th, 2014 10:55 AM

Readers should know that numerous towns in Illiniois and other states money frozen as part of this situation including, Hinsdale, Elmhurst and Downers Grove

Mose from Oak Park  

Posted: December 9th, 2014 5:34 PM

Transparency does not exist in VOP government because there is no demand for it by Anan or any of the trustees. Same for accountability. Don't expect more details coming out of Village Hall explaining how we got in to the mess with IMET. It would interesting to hear why CFO Lessor took so long to inform Village Manager Pavlicek and when the board actually received the bad news. Now let's see if OPEDC chief, Hedges is able to detail how $700K was spent. Amazing that he claims not to know.

John Murtagh from op  

Posted: December 9th, 2014 3:54 PM

I think their VM's reply is weak. We still don't know if OP transferred it funds to a safer bank. We still don't know why it took a month for the village to announce the existence of the problem. Transparency after the fact is useless.

Mose from Oak Park  

Posted: December 9th, 2014 3:34 PM

No doubt it is going to take time to recover the stolen money but at least there's a chance for Oak Park. Let's hope this incident encourages Village adminstrations to be more careful and the individual expected to provide overight in the first place is now being properly supervised. Great to hear someone at Village Hall refer to funds as the "people's money". Does that apply to the TIFs? Sure would be nice to know exactly how millions of tax dollars are spent but we're told that's top secret.

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