Pay To Play: Three Madison County Tax Buyers Plead Guilty To Price Fixing
Three individuals who participated in Madison County tax sales from 2005-2008 pled guilty in US District Court on October 17, 2013, to violating the Sherman Antitrust Act, the United States Attorney for the Southern District of Illinois, Stephen R. Wigginton, announced today. Barrett R. Rochman, 70, of Makanda, IL, Scott K. McLean, 51, of Belleville, IL, and John A. Vassen, 56, of O’Fallon, IL, each pled guilty to participating in noncompetitive tax sales.
The former treasurer of Madison County, Illinois, Fred Bathon pled guilty in US District Court on antitrust charges on February 5, 2013. Bathon was convicted of structuring Madison County property tax sales in a way that increased interest rates for the tax buyers in exchange for campaign contributors.
The charges allege that at Illinois tax lien auctions, investors bid to purchase tax lien certificates issued against delinquent tax payers. Investors are supposed to compete to purchase these tax liens by bidding on the interest rate the property owner will be required to pay prior to redeeming the tax lien attached to the owner's property. The bid opens at no more than the statutory maximum of 18% and through a competitive bidding process can be driven as low as 0 percent. The bidder offering the least penalty percentage rate, i.e., the bidder who is willing to allow the owner to redeem his property for the smallest penalty, is allowed to purchase the tax lien. As such, competitive bidding benefits financially distressed homeowners by reducing the amount of money that they have to pay to save their home from foreclosure; however, that same system reduces the profit made by tax buyers. Tax buyers prefer to receive high interest rates, which corresponds to higher profits.
For the tax sales conducted in 2005-2008, Fred Bathon structured the tax sales in a way that eliminated competitive bidding and allowed the tax buyers to engage in price fixing by only bidding the statutory maximum interest rate of 18%. The tax buyers who pled guilty today were charged with making campaign donations to Bathon in exchange for receiving property tax liens at non-competitive interest rates.
By 2007 and 2008, the bid rigging and price fixing was so pervasive that distressed homeowners were charged the statutory maximum interest rate on nearly every property tax lien sold. During the tax auction occurring November 14-15, 2007, 2,549 out of 2,574 property tax liens were awarded to bidders for the statutory maximum interest rate of 18%, which represented 99.03% of the property tax liens auctioned. During the tax auction occurring November 13-14, 2008, 2,290 out of 2,364 property tax liens were awarded to bidders for the statutory maximum interest rate of 18%, which represented 96.86% of the property tax liens auctioned.
A violation of the Sherman Antitrust Act is punishable by up to 10 years imprisonment and a $1,000,000 fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than the statutory maximum. However, the United States Sentencing Guidelines must be applied to the case and considered by the Court during sentencing. Sentencing for all three tax buyers has been scheduled for February 21, 2014. Bathon is scheduled for sentencing on December 6, 2013.
The investigation was conducted through the Metro East Public Corruption Task Force by agents from the Internal Revenue Service, and the Federal Bureau of Investigation. The case is being prosecuted by United States Attorney Stephen R. Wigginton and Assistant United States Attorney Steven D. Weinhoeft.