Judge: determining restitution in Bathon case is "impracticable"

A federal judge on Monday granted the government’s supplemental motion regarding restitution in the criminal case against former Madison County Treasurer Fred Bathon.

The government in late February asked Chief Judge David Herndon for an order determining that it would be “impracticable” to calculate the losses of individuals who may have been victimized by the tax sales scheme Bathon has pled guilty to.

The government also requested that Herndon find that it “has exercised its ‘best efforts’ to accord crime victims their right of restitution in the instant case” and should not expend additional resources in “determining the exact amount of restitution owed to each of several thousands of victims in the case.”

Bathon, who served as treasurer from 1998 until his 2009 resignation, pled guilty in February to violating the Sherman Antitrust Act and admitted to structuring the county’s delinquent property tax sales in a way that eliminated competitive bidding and allowed tax buyers to engage in price fixing.

He faces between 33 and 41 months in prison under the terms of his plea and will lose his entire public pension as a result of his conviction. Bathon’s sentencing has been delayed so he can continue to cooperate with the government.

In his March 1 order that denied the government’s request without prejudice, Herndon explained that he couldn’t fully consider the motion until he had more specific information.

Pointing to a news article, Herndon wrote that Kurt Prenzler, the current treasurer, has publicly said that while he does not have specific figures, he believes the loss associated with the tax sales scheme to be about $4 million.

“The government’s motion does not state that Mr. Prenzler was consulted to see if he has that information available nor apparently has Mr. Prenzler come forward to assist the government,” Herndon wrote.

“Perhaps,” he added, “Mr. Prenzler is just puffing but he might be serious, so Mr. Prenzler should first be consulted after which the government could inform the Court of the result in an amended motion, if it cares to, and at that time the Court will be able to fully consider the government’s position and whether it has exercised its best efforts.”

On Monday, the government filed a supplemental motion regarding restitution that appears to have included all of the information Herndon wanted because he granted it on the same day.

“The government provided a very complete description of its examination of the records located at the Madison County Treasurer’s Office,” he wrote.

“Furthermore," Herndon added, "the motion painstakingly describes the analysis the prosecutors, agents and the experts they consulted went through in an effort to quantify the losses attributable to the defendant and then individualize those losses to particular victims.”

After “that herculean task,” Herndon wrote that the government consulted with Prenzler just as he suggested in his March denial order.

“While that effort took a slightly different analytical path, the ultimate conclusion led to the same result,” he wrote, concluding “that it is highly impracticable to perform a complete accounting of the losses to each individual victim given the complex issues of fact related to the large number of victims.”

In its supplemental motion, the government states that Prenzler and Chief Deputy Treasurer Jeremy Plank met with the prosecution on March 11 at the U.S. Attorney’s Office.

Prenzler and Plank, according to the government’s motion, brought with them “a comprehensive spreadsheet containing the details for all 22,168 tax sale transactions occurring in tax years 2002-2010."

Although Prenzler and the government used slightly different methodology, the  motion notes that both “sought to quantify losses to individual distressed homeowners the same way – by comparing the average interest penalty rate charged during competitive auctions against the actual interest rates that were charged during the scheme.”

Prenzler’s formula, the motion states, calculated that individual property owners were overcharged about $4.4 million between tax years 2004 and 2007.

That figure, however, was reduced to about $3.6 million after Prenzler filtered "his results to examine only the transactions involving individuals or entities associated with the scheme,” the motion states.

The government, according to its motion,calculated overcharged interest at either nearly $4.07 million or about $4.4 million depending on its methodology.

“While no one can identify the total cost of the scheme with precision, it is clear that, on average, distressed homeowners in Madison County lost close to $4 million dollars as a result of this scheme,” the government asserts.

To reach its calculations, the government explained that it first “examined data from tax sales occurring in years free of collusion (tax years 2002-2003, and 2008-2010) and compared that data to the tax sales that were tainted by collusion (tax years 2004-2007).”

Although it claims the scheme left distressed homeowners charged with the maximum 18 percent interest rate on nearly every  property tax lien sold by 2007 and 2008, the government acknowledges in its motion that several factors can account for that rate “even during a perfectly lawful tax sale.”

“[T]o order restitution,” however, the government notes that the court must be able to “identify actual out-of-pocket losses,” a task that required it to distinguish between properties that were properly charged 18 percent interest and those that were charged that amount based on collusion.

Despite there being “very specific data” available from the tax sales, the government asserts that the data only provides averages and “cannot tell us with any level of certainty which particular properties experienced inflated tax bills nor can the data alone tell us what interest rate would have been bid in the absence of the scheme.”

The government also explained in its motion that it evaluated every tax sale that occurred in Madison County between 2004 and 2007, the tax years in which it alleges the Bathon bid rigging and price fixing scheme occurred.

“A total of 11,762 individual transactions were initially identified,” the government states, explaining that after it removed “ parcels that were unsold and allocated to the trustee, it was determined that a total of 9,299 tax liens were sold to tax buyers during the time period” and “of that group, 7,119 were purchased by individuals and entities associated with the scheme.”

The government shared this information, which was downloaded into a spreadsheet, with victim/witness staff from the Federal Bureau of Investigations (FBI) “in anticipation of identifying and individually notifying victims,” according to the motion.

In order to try to determine individual restitution, the government explained that it “attempted to determine the degree to which the criminal conduct increased interest rates and then apply that” rate against the value of each victim’s tax bill.

To identify an interest rate differential that could be used to calculate restitution, the government contends it had to review nine years of data from Madison County tax sales.

The government’s number crunching, however, didn’t stop there.

Saying that the interest rate differential is “an incomplete measure for assessing the economic harm caused by the scheme,” the government explained that it also had to consider semi-annual compounding interest rates, among other factors and variables.

Comparing “the average amount of interest received per tax lien” the government calculates that “in the absence of collusion” $778,035.15 of interest would have been collected for 7,119 tax liens. However, $4,846,902.14 was actually collected due to the inflated interest rates.”

The government also assessed the tax buyer’s return on their investments.

“In years with competitive bidding, the individuals and entities associated with the scheme actually earned 5.97 percent on their investment; while during the scheme they pocketed a whopping 35.92 percent,” the motion states.

If those individuals and entities had collected the 5.97 percent rate in between tax years 2004 and 2007, the government asserts that “they would have collected $805,040.46 interest instead of the nearly $5 million that they actually collected.”

“These calculations estimate the economic impact of the crime,” the motion states. “The Government endeavored to mathematically allocate that overcharged interest proportionally amongst aggrieved property owners, but that proved to be a task that was not possible under the governing law.”

In addition to its calculations, the government notes that it "consulted with two experts in the field of Illinois tax sales” on “whether a process could be employed to ascertain out-of-pocket loss to each homeowner on an individual level.”

Both experts, the government states in its motion, agreed it would be impossible to do so.