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.”