Dixon will recoup $40 million from auditors, bank
City settles out of court in embezzlement scandal
DIXON – The city of Dixon reached a $40 million out-of-court settlement with its former auditors and Fifth Third Bank, who the city said were to blame for former Comptroller Rita Crundwell's theft of nearly $54 million in the past two decades.
The agreement was reached Saturday following a 17-hour session in Chicago, Mayor Jim Burke said.
Burke said the amount of the settlement speaks for itself, suggesting it provided vindication for a City Council that has taken its fair share of blame for the theft.
Of the $40 million, $35.15 million will be paid by CliftonLarsonAllen, the city's auditor until 2005, $3.85 million by Fifth Third Bank, which handled the city's checking accounts, and $1 million by Janis Card and Associates of Sterling, which took over the city's audits in 2005 from CliftonLarsonAllen until Crundwell's arrest.
The money is expected to be handed over to the city by the end of the year, Burke said.
With $10 million the city expects to get from the federal government from the sale of Crundwell's assets, Dixon will have recouped $50 million – nearly $4 million shy of the total theft.
"I was really hoping from the very beginning to get at least half of it back," Commissioner Jeff Kuhn said in a phone interview Wednesday. "When I first heard that number, I was like 'Wow.'"
About $10.3 million of the settlement will go toward legal fees, Burke said. Commissioners and the mayor said the caliber of its lawyer led to the strong settlement.
"I hope nobody goes after us for the expenses to gain this recovery," Dixon city commisioner Dennis Considine said. "We hired a very talented law firm, and because of their skills, we were able to fight tooth and nail for [the settlement.]"
A total of 37 participants attended Friday's negotiations, including the defendants, insurance companies and Lloyd's of London and their attorneys, Burke said.
The mayor and the city's attorney Devon Bruce, of Power, Rogers & Smith in Chicago, represented Dixon.
The meetings started at 8 a.m. Friday and concluded at about 1:30 a.m. Saturday, without anyone leaving.
"Their first offer was $12 million," Burke said. "Devon stayed the course on it. There was no real exact figure we went into negotiations looking to have. My only suggestion was not to leave any money on the table."
The mayor and Bruce met with Clifton and Fifth Third Bank's attorneys in San Francisco in October 2012, in an early effort to reach an out-of-court settlement, but the parties were too far apart for an agreement, Burke said.
Since that meeting, Bruce went to work putting together a case against the city's former auditors and Fifth Third Bank.
Deposition statements from Megan Shank and Ashley Peach, who both worked on Dixon's account for Clifton, said the auditing firm did not verify projects Crundwell created using fake Illinois Department of Transportation invoices, according to court documents from the lawsuit.
These invoices were used to siphon money from Dixon's funds to a secret bank account.
Other undetected red flags were pointed out as well, including invoices missing an emblem or proper contact information.
For Fifth Third Bank's part, they showed bad faith when they allowed Crundwell to withdraw more than $48,000 directly from the city's capital development fund and did not include the secret bank account when auditors asked for all city accounts, according to documents filed by Bruce.
The bank was in the process of making a motion to dismiss the case before a settlement was reached.
The settlement comes without an admission of liability, said Larry Magnesen, a spokesman for Fifth Third Bank. He said he could not comment any further.
Gordon Viere, CEO of CliftonLarsonAllen, called for a shared responsibility for Crundwell's theft in a statement Wednesday.
“The allegations of fraud committed by [Crundwell], some of which she pled guilty to, are extremely serious and present an opportunity for all affected parties to evaluate how they occurred,” Viere said. “We believe there was a shared responsibility that resulted in Ms. Crundwell’s fraud continuing undetected, and the right thing to do is reduce the harm experienced by the taxpayers of Dixon and put this matter behind us. Reaching a fair settlement for taxpayers is important to CliftonLarsonAllen.”
The firm's services to city governments are now led by personnel with specialized knowledge and experience in serving public bodies, increasing the likelihood that fraud will be detected more promptly, according to Clifton's statement.
As part of the agreement, the city will file no further lawsuits against the defendants or their representatives.
The suit, filed in June and amended a number of times, named CliftonLarsonAllen LLP, Janis Card Company, Samuel S. Card, CPA, Fifth Third Bank, Todd Etheridge and Ron Blaine as defendants for their negligence in detecting Crundwell's theft. The suit asked for $53 million in damages.
"It was a complete win for the city," Bruce said.
It's been difficult watching from the sideline during the lawsuit, Kuhn said. City officials were instructed to say as little as possible when it came to anything Crundwell.
"We've known this all along, but couldn't say anything for fear of jeopardizing the case," Kuhn said. "More or less, we had to sit back and take it. Hopefully it's obvious to citizens now. 'Yes, Rita was the person who did it,' and other people were asleep at the switch and should have caught it, too."
Crundwell was sentenced to 19 years, 7 months in prison Feb. 14 for federal wire fraud. She is serving her sentence at a correctional facility in Waseca, Minn., and has since appealed her sentence. That appeal is ongoing.