Township Officials of Illinois Risk Management Association (TOIRMA) filed a suit against Thomas B. Fahnestock and Fahnestock Financial Services on May 14.
Flack, who had served as Supervisor between 2001 and 2013, pleaded guilty at federal court in East St. Louis in September 2013 to wire fraud and structuring transactions to evade reporting requirements. He was sentenced in July 2014 to five years probation on each count to run concurrently and ordered to pay restitution of $698,894.13 - $661,565 to TOIRMA and $37,329.13 to Moro Township. He also had to pay a $200 assessment.
Flack, 78, was ordered to begin repaying his debt at a rate of $1,000 per month on Aug. 1, 2014.
The suit says that Township officials became "immediately" suspicious that money was not merely missing, but was likely misappropriated or embezzled by Flack during a trustee meeting on May 14, 2013.
At the meeting, which was convened to discuss missing money, Flack "abruptly stood up, announced he was resigning, and walked out of the meeting."
A forensic audit of Township finances to determine the extent of embezzlement and misappropriation was then ordered.
"Upon conducting its inquiry, the accounting firm of Ken E. Loy and Co. determined that during a period of over 10 years, Supervisor Flack misappropriated/embezzled $698,894.13 which TOIRMA had to pay to Moro Township as per its bond claim," the suit says.
It further alleges that Fahnestock and his firm failed to properly audit the funds, finances and expenditures of Moro Township in its audits performed in 2005, 2009 and 2013. The alleged malpractice included failing to reconcile the bank accounts of the Township, failure to analyze the checks, transfers and other expenditures and the failure to ensure that the Township's financial records contained documented support, including receipts, invoices or statements for reimbursements that Flack was receiving "purportedly for 'offices expenses.'"
The defendants filed a motion to dismiss on June 18.
They claim Fahnestock Financial Services did not perform any audits because it is not licensed to perform audits.
“Any audits that were in fact performed on Moro Township’s financial records were done so by defendant, Thomas B. Fahnestock, and not by Fahnestock Financial Services, Inc.,” the motion states.
However, the defendants add that Fahnestock did not perform the audits in question for 2013. He did perform audits for Moro Township in 2005 and 2009, but he claims the statute of limitations for those have expired.
Circuit Judge Andrew Gleeson scheduled a motion hearing for Sept. 4 at 9 a.m.
According to the federal information charges against Flack, his problems began in 1996 when he was presented with a personal investment opportunity where he originally bought $2,500 worth of petroleum stocks with his own money and was promised a "big pay day" with a very large promised return on his investment.
"In approximately 2006, Donald R. Flack began unlawfully taking money in excess of his authorized salary from the Moro Township Accounts- Township Fund, Road/Bridge Fund, and Oil Fund initially believing that he could repay the money to the township when he received the big return on his investment. Initially Donald R. Flack used the money for his everyday expenses.
"The large promised return on the investment never happened and Donald R. Flack realized that he did not have the funds to repay the original misappropriated funds. In desperation Donald R. Flack began searching on the Internet of promised ways to make money fast.
"Soon thereafter Donald R. Flack was solicited to participate in 'advance fee' schemes where he was persuaded to pay money in order to obtain a larger sum of money that never materialized.
"Donald R. Flack participated in these advance fee schemes and took more and more money from Moro Township in hopes of being able to recoup and repay the previous money misappropriated.
"To participate in the advance fee schemes Donald R. Flack wrote checks to himself out of one of the Moro Township accounts. The payments to himself were generally disguised as "office expenses." Donald R. Flack would then cash these checks and use the cash to make wire transfers of funds via Western Union agents to various places around the world, generally Nigeria, South Africa and Nicaragua. Donald R. Flack used a large number of different Western Union Agents and directed the funds to a large number of various receivers. Donald R. Flack generally participated in structuring the transmitted funds in amounts under $3000."
The first six months of Flack's sentence were to be served at a halfway house. But four months into it, he moved to suspend his halfway house sentence due to health reasons, which was granted by Chief Judge Michael Reagan on Nov. 14, 2014.
TOIRMA is represented by Andrew Carruthers of HeplerBroom in Edwardsville.
Bill T. Walker of Granite City represents the defendants.
Madison County Circuit Court case number 15-L-619