The plea agreement reached Tuesday between federal prosecutors and former Madison County Tresurer Fred Bathon states that investors "colluded" with Bathon in a scheme to charge high penalty rates to property owners whose taxes were delinquent.
Each year, during the annual property tax sale that Madison and other counties in Illinois conduct, investors buy the right to pay residents' unpaid property taxes. The investors make money by charging a penalty to the property owners. If the property owner doesn't pay the taxes and the penalty, the investor can take the property.
In most counties, the tax bills are sold in a reverse auction, where the investor offering to take the lowest penalty rate is the winning bidder. The process is supposed to ensure that property owners aren't charged excessive penalties paying their taxes late.
However, witnesses say Bathon -- who pleaded guilty Tuesday to rigging the sale -- conducted his tax sales like a bid opening, where investors were not allowed to undercut each other or "bid down" the penalty percentage.
Under Bathon's procedure, all the bidders would shout an opening bid; the one who shouted the lowest bid first was declared the winner.
But in court documents, federal prosecutors said Bathon's procedure resulted "in a chaotic scene where every participant at the tax sale shouted their bids simultaneously, leaving the auctioneer, a treasurer's office employee, to select the 'winner.'"
In the last three years of Bathon's tenure, the average penalty rate was 17 percent, 18 percent and 18 percent. At the auction held the following year, under a new treasurer who took over after Bathon retired, the average penalty fell to 9 percent.
At Madison County's auction in 2008, where 2,568 tax bills were sold, the winning bid was 18 percent on all but eight pieces of property. The 18 percent rate is the maximum allowed under state law.
In the plea agreement, Bathon and federal prosecutors stated that some tax buyers were at least aware of the scheme.
"From 2005, continuing through November 2008, certain tax buyers colluded to engage in a bid-rigging and price-fixing scheme," the plea agreement states. "Those tax buyers reached an understanding that they would bid the statutory maximum interest rate of 18 percent. The tax buyers submitted noncompetitive bids and refrained from submitting bids at lesser interest rates."
Bathon steered winning bids to his campaign contributors by awarding them prime seats at the auction, so that the auctioneer would see their bids first, according to the plea agreement. The document also states that Bathon ordered the auctioneer, his employee, "to disperse winning bids between his largest campaign contributors."