EAST ST. LOUIS — Fred Bathon, the former Madison County treasurer, pleaded guilty Tuesday in federal court to conspiring to restrain interstate trade by illegally rigging sales of delinquent property taxes from 2005-09.
He also agreed to work with prosecutors as they pursue criminal charges against others involved in the bid-rigging that victimized homeowners who were already in financial distress.
"This crime exploited financially-distressed homeowners who were at risk of losing their homes for the financial gain of political contributors. This type of pay-to-play politics is intolerable and will be aggressively prosecuted. It is time that those involved in politics learn that public office is a public trust that should never be manipulated to reward friends and supporters," U.S. Attorney Stephen Wigginton said.
"Note that today's charge is a charge of conspiracy," Wigginton added. "By its very nature, conspiracy involves more than one person."
Bathon, 58, would have faced a maximum sentence of 10 years in prison without the plea deal. Under the plea agreement he signed, he faces between 30 and 41 months, according to U.S. Magistrate Judge Steve Williams. Sentencing was scheduled for May 17.
Bathon's conducting of the sales unfairly forced thousands of property taxpayers to pay millions of dollars in inflated interest payments to a small cadre of Bathon's top campaign donors. Wigginton said restitution had not been determined, because there were more than 10,000 tax bills involved and it was hard to calculate the losses.
Prosecutors are setting up a system for Bathon's victims to get information.
Bathon agreed to cooperate with investigators, so Wigginton said prosecutors may seek a sentence reduction. He said Bathon accepted responsibility for his actions in open court.
"By doing so, he has assisted the government in preserving resources in time and money. We can now direct our agents towards other potential defendants," Wigginton said. He declined to comment further on other potential defendants, and whether the investigation goes beyond the tax sales.
Wigginton said the decision ultimately rests with the state, but he believes state law makes it a certainty that Bathon will lose his government pension, which is more than $88,000 annually. "We believe it is an inevitability that he will lose his pension," Wigginton said.
Bathon said he understood the implications of his plea, including federal prison time and losing his pension. Williams asked him about any psychological problems.
"Not serious, no" he told Williams.
When the judge asked what that meant, Bathon replied, "I've been treated for about 17 years for depression."
He said he took antidepressants. When asked about other drugs and alcohol, Bathon said, "I had a couple of beers last night."
Other than that, he said he takes Advil for arthritis. "I take plenty of that," he said.
As county treasurer, Bathon collected the county's property taxes and controlled the checkbook and savings of a multimillion-dollar operation. As a criminal defendant, he was asked by the judge if knows how to read and write -- a routine line of questioning during a plea hearing.
Williams ordered that Bathon can remain free on a $25,000 unsecured bond, which is essentially a promise to appear in court later.
At a tax sale, investors pay the delinqent taxes of property owners and receive a tax lien against the property. In order to keep their property out of foreclosure, the property owners have to repay the taxes to the investors, along with a penalty.
The penalty rate is determined during the tax sale, which is conducted like a reverse auction. The bidding is supposed to be competitive, with investors bidding against each other to see who is willing to accet the lowest penalty rate.
From 2006 to 2009, the last three years of Bathon's tenure, the average penalty rate awarded to tax buyers was either 18 percent -- the highest rate allowed by state law -- or 17 percent, according to an October 2010 News-Democrat probe of the tax sales.
The average fell to 9 percent after Bathon retired and Frank Miles, a fellow Democrat, was named treasurer.
At the 2007 Madison County tax sale, 2,549 out of 2,574 property tax liens were sold to tax buyers allowed to charge the delinquent property taxpayers the legal maximum of 18 percent interest. In 2008, it was 2,290 out of 2,364 property tax liens that were allowed to charge the maximum.
In comparable counties, such as Champaign County -- whose treasurer does not take donations from tax buyers -- the penalty rate never rose above 5 percent and was as low as 1 percent, according to the newspaper investigation.
Tax buyers contributed thousands of dollars at a time to Bathon, for a total exceeding $140,000 during Bathon's tenure as treasurer, from 1998 to 2009.
Bathon's attorney, Clyde Kuehn, declined comment after the hearing.