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Flossmoor investment funds frozen following scam

Flossmoor is taking steps to protect its municipal investments following a potentially far-reaching financial scam that is already tying up more than $50 million in government funds across Illinois.

Of Flossmoor’s investment, $90,000 is directly affected by the case.

The village has withdrawn more than two-thirds of its municipal portfolio in one of two funds operated by Illinois Metropolitan Investment Fund, or IMET. Following disclosure of the fraud, Flossmoor reduced its investments in IMET’s Convenience Fund from about $3.5 million to $1 million.

On Oct. 29, IMET notified its investors that it is taking 2.8 percent from each of the affected accounts and reserving a total of $50.4 million in a restricted trust fund until the case is resolved. The 2.8 percent reflects the percentage of the Convenience Fund – which has a total of $1.7 billion – that was affected by the fraud.

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Flossmoor’s restricted $90,000 will be unavailable to the village until the case is resolved.

Village Manager Bridget Wachtel said the freezing of the funds will not affect any day-to-day operations in Flossmoor municipal government. 

“We are not facing a crisis because of this,” she said.

Wachtel added that the village is hopeful that “most, if not all, of these funds will be recovered.” Steps have already been taken to seize the assets of the firm that allegedly committed the fraud in the Convenience Fund.  

Finance Director Scott Bordui said he believes that it will take at least six months to resolve the case. The perpetrators of the scam reportedly used money from the sale of fraudulent loans to purchase real estate.

Bordui said Flossmoor has been investing in IMET since its creation in 1996. The Convenience Fund, which allows investors to withdraw money within a 24-hour period, was established in 2003. Prior to that year, IMET only offered its One to Three Year Fund. Flossmoor still has $2.5 million in that fund, which was not affected by the investment scam.

The IMET fraud prompted Flossmoor to reconsider the risks that come with remaining in the Convenience Fund, Bordui said. The Convenience Fund, with higher risks, has produced higher yields. 
“We’re still comfortable with keeping $1 million in the Convenience Fund,” he said.

Money withdrawn from the Convenience Fund has been invested in the Illinois Fund, a money market account operated by the state treasurer. That fund traditionally offers low investment yields.
Bordui said there has never been any previous problems with IMET and that the fraud was unrelated to any wrongdoing by the firm. 

“They did nothing outside their regular investment policy,” he said.

Over the past 20 years, IMET has been “wildly successful” in helping governmental units increase their revenues through investments, Wachtel said. Flossmoor is one of 293 governmental units in Illinois that invest in funds at Oak Brook-based IMET.

Nikesh Patel, 31, chief executive of First Farmers Financial, in Orlando, Florida, was arrested in September and later released on a $100,000 bond. Patel is alleged to have originated about 25 loans totaling more than $150 million, according to a criminal complaint filed by the FBI on Sept. 29.

Court papers say Patel was an authorized lender in a loan program operated by the U.S. Department of Agriculture. Patel sold the loans to Milwaukee-based Pennant Management under the false pretense that the loans were guaranteed by the USDA, according to court documents. The loans were then sold to IMET. The FBI said fabricated loan guarantee forms and forged signatures were used in connection with the the loans.

Wachtel and Bordui said they have been in contact with a number of their counterparts in other communities since the announcement of the IMET fraud. 

“Some are pulling out but others say they will will stay in IMET,” Bordui said. “I talked to someone from a large north suburban community with $50 million in investments. He said they are not taking out any money.”

“We are trying to make a business decision, not one based on emotion,” Wachtel said.


Contact Tom Houlihan at [email protected]

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