Several local school districts and the village of Riverside are facing potential financial losses because a municipal investment fund that they invested in was defrauded. 

The Illinois Metropolitan Investment Fund (IMET), which invests money for nearly 300 Illinois municipalities, pension funds and other public agencies, is out $50.4 million after purchasing fraudulent securities from a Florida-based institution. 

After IMET discovered the fraud last fall, it froze 2.8 percent of each investor’s assets in a fund called the Convenience Fund, which is a short-term investment fund.

For the Proviso Township School Treasurer’s office, which handles finances for Riverside Brookfield High District 208, Riverside Elementary School District 96, Brookfield, LaGrange Park School District 95 and Komarek School District 94, that amounted to just over $2 million, spread across 14 school districts. 

District’s 208 share of the fraudulent investment is $181,482. District 96’s exposure could range from $140,000 to $250,000, while District 95’s exposure is estimated to be around $120,000 to $130,000. 

However the school districts may not ultimately suffer any losses or the losses will be greatly mitigated, because IMET and the investment advisor who recommended the securities to it, Milwaukee-based Pennant Management, have been aggressively pursuing the people behind the fraud. 

They have already seized assets worth 60 to 70 percent of the loss, according to IMET’s attorney Randall Lending.

“The 60 to 70 percent does not include other potential recoveries,” Lending told the Landmark on Monday. “Pennant is engaged in an investigation on right now. They’re chasing the money, the trail, and hopefully we’ll have other assets.”

The village of Riverside had $16,196.91 frozen. It still has access to a little more than $580,000 it has in the Convenience Fund and another $3.8 million it has invested in another IMET fund. 

The villages of Brookfield and North Riverside did not invest any money with IMET, although last fall, just before the fraud was discovered, the village of Brookfield added IMET to its list of investment alternatives.

Pennant has sued Nikesh Patel, the chief executive of Florida-based First Farmers Financial, the company that is allegedly behind the fraud. First Florida marketed repurchase agreements, normally super safe investments, as being backed by loans guaranteed by the United States Department of Agriculture. 

Those guarantees did not invest, and Patel has been arrested and accused of forging the loan documents. His personal assets have been seized and are being placed in a liquidating trust to pay back the investors who bought the fraudulent repurchase agreements, including IMET. 

Patel has also been arrested and is facing criminal charges in connection with the fraud.

“There has been a significant amount of assets already recovered,” George Chirempes, the chief financial officer of the Proviso Township Trustees of Schools office told the District 208 school board on Jan. 13. “What are they worth? We don’t know. We’re talking hotels, five hotels down in Florida in the Orlando area. We’re talking property. I think they’re doing a very good job of seizing assets. There are also co-conspirators.”

Chirempes said he was confident that the schools treasurer’s office would be made whole and that the school districts would ultimately not lose any money.

“We’re going to get the money back, because there are a number of insurance policies, fidelity bonds, lawsuits,” Chirempes said. “This is just the beginning.”

Proviso Township School Treasurer Daniel Coglianese told the Landmark that it is too early to tell if the school districts would get all their money back.

“If you’re an optimist you could say there’s going to be no loss; if you’re a pessimist you’re going say this is a loss,” Coglianese said on Monday.

The Proviso Township School Treasurer’s office, a little known agency, invests money and handles the finances for 14 school districts. Schools in suburban Cook County are required to use a township treasurer’s office unless they receive a special exemption from the state legislature.

Coglianese said his office has been investing with IMET for about three years. He said he was as shocked as anyone about the fraud.

“We got caught in something we have no control over,” Coglianese said. “It was not that we invested in a rip-and-run company and we threw a dart at a board and picked them.”

The Proviso Township School Treasurer’s office invests more than $200 million for its school districts and the IMET investment constituted just a small percentage of its investments. The fraud only affected 2.8 percent of its investment with IMET. 

School officials say that even if they lost all the money at risk it would not affect operations.

“School districts have cash reserves as a necessity to handle unforeseen financial conditions and this is an example of an unforeseen and uncontrollable, unfavorable occurrence,” said David Sellers the interim director of finance and operations for Riverside District 96.

District 95 superintendent Mark Kuzniewski agreed.

“It has no operational impact,” Kuzniewski said. “Even if, at the end of this whole big issue, if there is a loss and the districts have to absorb the loss, I believe there will be the ability to think creatively about how to absorb that loss over time.”

Coglianese said he did not formally inform districts of the problems with the IMET investment until last week, because IMET has not formally recognized any loss. However, the Chicago Tribune first reported the fraud on Nov. 30 and IMET informed municipalities of the fraud last fall.  

“Our money was being held in a restricted account and we were collecting full interest,” Coglianese said. “You don’t collect interest on money that you don’t have.”

The village of Riverside has no plans to pull its remaining money out of IMET.

“We are of the opinion that we are not going to make any drastic moves at this point,” said Marco Salinas the interim finance director for Riverside. “We do not plan, for the foreseeable future, drawing down those balances.”

Township School Trustees exist only in Cook County

In Cook County, most townships have a school treasurer's office, officially known as the Township School Trustees. These little known offices manage the finances of most public school districts in suburban Cook County. 

They invest money, cut checks and pay bills. They are a quirk of state law and do not exist in the rest of the state. These offices are little-noticed until one of their investments go bad or when an official is indicted, as happened to the former Lyons Township school treasurer Robert Healy, who in 2013 was charged with stealing $1.5 million from the Lyons Township Treasurer's office.

"We're like a financial network for all the school districts," said Daniel Coglianese who has served as the Proviso Township School treasurer for 27 years. "We do their payroll, their accounts receivable, their accounts payables, their bond issues."

Because there is no Riverside Township school treasurer, Coglianese's office serves 14 school districts including Riverside-Brookfield High School District 208 and Riverside Elementary School District 96 as well as Komarek District 94 and Brookfield-LaGrange Park District 95.

The township school treasurer's office has a three person elected board that hires a treasurer. The Proviso board meets just four times a year.

Some school districts, especially high school districts, would prefer to handle their own finances and do without the township treasurer's services.

Two weeks ago members of the District 208 school board vented their frustrations to Proviso School treasurer chief financial officer George Chirempes who they had asked to appear before them. Board members complained about the fees they pay, between $50,000 and $85,000 a year, how the fees are assessed and the services they receive.

"You give us basically a smoke and mirrors kind of a report about how great the services are and we don't think the services are great," said board member Tim Walsh.

Board members complained about the poor communication and groused that the Proviso school treasurer's office doesn't even have a website.

District 95 Superintendent Mark Kuzniewski said documents must be faxed, not emailed to the Proviso school treasurer's office and noted that their software system is very old.

"We have expressed frustration with the archaic systems to manage the office," Kuzniewski said. 

However, Kuzniewski said the office does help small school districts and he said it would cost more money to hire someone to manage money for his district.

"I think the township treasurer, for a small district like ours, is beneficial," Kuzniewski said. "When you co-op and pool all your resources will other like, small school districts that seems to make sense."

—Bob Skolnik