A $150 million federal fraud charge filed against a Florida businessman known for his Lamborghini and Rolls-Royce has socked investments made by towns across Illinois, including Belleville, Collinsville and Wood River.
Now Belleville and the other cities are trying to get their money back.
Belleville has about $347,000 being held in a restricted account managed by the nonprofit Illinois Metropolitan Investment Fund, which suffered about $50 million in losses connected to the fraud allegations against Nikesh Patel of Orlando, Fla.
Collinsville has about $35,500 restricted by the Illinois Metropolitan Investment Fund, which is also known as IMET. Wood River has about $19,700 frozen by the fund.
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As a result of the losses linked to Patel, Illinois Metropolitan Investment Fund managers restricted 2.8 percent of the money each city invested in the Convenience Fund operated by IMET.
Patel was charged in federal court in Chicago on Sept. 29 with devising a scheme to fraudulently obtain money, according to a criminal complaint. Neither Patel nor his lawyer, Mark NeJame of Orlando, could be reached for comment.
After the charges against Patel were announced, Belleville removed the remaining $13.8 million it invested in the Illinois Metropolitan Investment Fund, according to city Treasurer Dean Hardt.
“Will we get back 100 percent? We don’t know but we’re hopeful we can recoup some of our loss,” Belleville Mayor Mark Eckert said. “There was no way anyone could have foreseen this at our level.”
“The city is working through our attorney to effectively ... go after our money. We’re doing everything that he’s advised us to do. We’re not the only city unfortunately that’s experienced this as you know there’s many.”
Eckert said there was “every indication ... that the group we were dealing with was very secure but unfortunately we found a glitch.”
“It’s true that somewhere along the line there, somebody should being doing a little better investigating probably,” Eckert said.
Hardt said the money withdrawn from IMET was deposited into the city’s account with the Bank of Edwardsville.
“We no longer have money in this Convenience Fund with IMET,” Hardt said. “We are actively pursuing all avenues and resources to ensure that these monies are replaced in its entirety to the city of Belleville.”
Hardt said the City Council first approved investing with IMET in 2012, and in 2013 the city invested $15.2 million. In April last year, the city withdrew $1 million for paying outstanding bills.
Hardt said he is working to reinvest the deposits now with the Bank of Edwardsville.
In an effort to get the money back, Belleville aldermen last month approved a resolution authorizing a “tolling agreement” with IMET and other cities that invested in the Convenience Fund.
This type of agreement means the groups will not sue each other for now and that they will work cooperatively to recover the $50 million loss suffered by IMET.
Of the metro-east cities involved in the Illinois Metropolitan Investment Fund, Belleville had the highest amount invested in the Convenience Fund.
Tamara Ammann, finance director and treasurer for Collinsville, said the city had $1.28 million invested in the Convenience Fund at the time the alleged fraud was announced. She said IMET officials have given the city “encouraging” reports that Collinsville would be able to get back the $35,500 now held by the fund.
Collinsville has kept its remaining investment in the Illinois Metropolitan Investment Fund.
Wood River officials believe they will be able to get back at least two-thirds of the $19,700 being held by IMET, said Tracy Kennett, finance director and treasurer. Wood River had about $714,000 invested in the Convenience Fund at the time the fraud allegations were announced.
The city also had nearly $2 million invested in IMET’s 1 to 3 Year Fund. Kennett said the city has not removed its investments from IMET but will monitor to see how the recovery process plays out.
Other metro-east cities invested in IMET but did not have money in the Convenience Fund affected by the alleged fraud. These cities invested in the IMET’s other fund, the 1 to 3 Year Fund.
Waterloo has $11.3 million invested in the 1 to 3 Year Fund, according to Shawn Kennedy, the collector and budget officer.
O’Fallon withdrew $1.5 million in October, primarily from the 1 to 3 Year Fund. The city still has $17,500 in unrestricted investments with IMET, said Sandy Evans, director of finance for O’Fallon.
“The city started withdrawing money from the IMET accounts in early October when we heard rumblings that something was going on but had not officially been informed of the situation,” Evans said.
Highland had previously invested in the Illinois Metropolitan Investment Fund but had closed its account in 2013.
Neither Madison nor St. Clair counties invested in IMET.
Glenview, near Chicago, had about $51 million invested in the Convenience Fund and about $1.3 million was frozen, said Village Manager Todd Hileman.
The Oak Brook-based Illinois Metropolitan Investment Fund was formed in 1996 as a cooperative to give towns a place to invest money. Nearly 300 cities, school districts, pension funds and other public agencies had money invested in IMET at the time Patel was charged.
Neither Laura Allen, the executive director of IMET, nor the group’s attorney, Randall Lending, could be reached for comment.
“We want to assure you that this is an isolated incident and is contained as we have eliminated all other repurchase agreements from the Convenience Fund in an abundance of caution for IMET participants,” read a Dec. 14 statement the group sent its members.
The Convenience Fund invested in what are known as repurchase agreements, or “repos,” through Milwaukee-based Pennant Management Inc., which did business with Patel’s company, First Farmers Financial of Orlando, according to federal civil and criminal court records.
Court records outline details of the deal:
Pennant began to acquire what appeared to be U.S. Department of Agriculture guaranteed loans from First Farmers. As part of a repurchase agreement, First Farmers would receive cash from Pennant for securities, or loan documentation, with the promise by the seller to repurchase the securities. The securities serve as collateral to secure the seller’s agreement to repurchase the securities for cash.
A representative from Pennant could not be reached for comment.
Fitch Ratings of New York issued a statement in January raising questions about the Illinois Metropolitan Investment Fund.
“Reports of losses at the Illinois Metropolitan Investment Fund due to potentially fraudulent investments highlights the importance of following industry best practices with respect to investment policies, controls and strong oversight of third-party agents,” Fitch Ratings said.
Pennant filed a federal lawsuit against Patel last year, alleging he defrauded the company of $179 million connected to 26 loans Patel’s company sold Pennant from May 2013 to August.
“Each of those 26 loans was sham,” according to the lawsuit.
“Pennant has discovered that all 26 of the loans it acquired from (First Farmers Financial) are fraudulent; the borrowers do not exist and the (U.S. Department of Agriculture) has told Pennant that neither the loans nor the guarantees are reflected in its books and records.”
The lawsuit and criminal charges against Patel are pending in federal court in Chicago.
Patel’s lawyer has said Patel wants to pay back the money he owes.
And about Patel’s luxury cars?
U.S. District Judge Amy J. St. Eve, a Belleville native, signed an order connected to the lawsuit calling for the Lamborghini Gallardo, Rolls-Royce Wraith, five hotels, two homes, gold coins and a gold bar to be liquidated.