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The importance of this treaty transcends numbers. We have listened to the wisdom of an old Russian maxim. Though my pronunciation may give you difficulty, the maxim is, Doveyai, no proveyai. Trust, but verify. Ha ha ha!
That was the voice of former President Ronald Reagan, using one of his signature phrases during the Cold War treaty negotiations with Russia that took place in Reykjavik, Iceland on October 11th and 12th of 1986: "Trust, but verify." In fact, he used this phrase so often that the Russian General Secretary at the time, Mikhail Gorbachev, famously grew tired of hearing it, playfully accusing Reagan of repeating this maxim during every meeting.
but in the context of the Cold War, it made a lot of sense. Reagan was attempting to foster a positive relationship with the Russians by offering his trust, while at the same time emphasizing the extensive verification procedures that would take place to ensure that Russia was complying with the newly signed treaty to reduce the size of its nuclear arsenal. In total, over 2,600 intermediate-range nuclear missiles were destroyed, with 10 years of on-site verification inspections to follow.
America trusted the Russians to honor the deal, but used its own eyes to verify that it had actually happened. Seeing is believing, after all. Since then, politicians and talking heads have borrowed Reagan's old adage when proposing different policies, from border security to disarming the Iranians, to Barack Obama's birth certificate. We're not just going to verify or trust and verify. We're going to verify and verify and verify. Verification is the key.
Verification is the key. The United States' emphasis on verification was critical in dealing with the Russians and may have helped avoid the mutually assured destruction of nuclear war. Well, for now at least. But what would have happened if the United States neglected to verify that Russia was abiding by the treaty? What if we just took their word for it? What's the worst that could happen?
Coincidentally, the town where Ronald Reagan spent his childhood provides a stunning example of what can happen if you trust but don't verify. Although the fallout doesn't quite equate to the doomsday scenario of nuclear warfare, the town of Dixon, Illinois experienced a devastation in their own right, albeit a financial devastation. Failing to heed the words of its most famous former resident, the town of Dixon became the victim of a $53 million embezzlement.
at the hands of one of its most trusted and longest tenured municipal employees. This is the case of Rita Cronwell and the largest municipal fraud in American history on this episode of Swindled.
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About 100 miles west of Chicago, on the banks of the Rock River, lies the town of Dixon, Illinois. The town is relatively small, with a population of about 16,000 people, but Dixon is the birthplace of some highly influential people. Besides President Reagan,
Charles Rudolph Walgreen, the pharmacist and founder of the Walgreens drugstores, was born in Dixon. Reagan used to caddy for Walgreen while he played golf at the Timber Creek Golf Course. And John Deere, the tractor guy, was also born there. One of Dixon's most popular tourist attractions is a tour of John Deere's family home and blacksmith shop. Dixon is also famous for being the spot where Abraham Lincoln volunteered for the Illinois militia to fight in the Black Hawk War.
But other than a few notable names and a few notable events, Dixon is your typical Midwestern American town where everybody knows one another. It's inhabited by hardworking people who exude the kind of hospitality that you can only find in small town USA. The people of Dixon are proud to be from Dixon, and they're proud of their own. And Rita Crunwell was one of their own. Crunwell was born on a farm outside of Dixon in 1953.
She was one of six kids in a modest, church-going, blue-collar family. She was a bright kid. She was social. She was a hard worker. And she excelled in school. When she was 17, she was offered a position at Dixon City Hall through her high school's work-study program. She enjoyed the job, performed well, and accepted a full-time clerk position with the city soon after graduating, choosing not to go to college as originally planned.
Besides, academics weren't Rita Cronwell's main passion. Horses were Rita Cronwell's main passion. Quarter horses, to be exact, which are used in races and rodeos because of the speed at which they're able to sprint short distances. Rita's interest in equestrianism was inherited from her mother and only increased with age. Growing up, her family bred quarter horses and competed in different events at the county fair, oftentimes taking home a prize or trophy of some kind.
By the time she was in her mid-20s, Rita was showing her horses at regional events, and in her mid-30s, she was winning them. In 1985, at the age of 35, Cronwell won first place at the Indiana State Quarter Horse Championship and another one in Texas, creating a hunger to reach the pinnacle of her sport.
Here's Rita talking about one of her prize-winning horses. He's just a real pretty, elegant, and an stallion. And I just thought he'd cross on my mares, my NH mares. I mean, he's a stud, but he's not mean or anything. They just, you know how they are. A few years before she won those championships, in 1983, Rita Cronwell was appointed as the comptroller and treasurer of the city of Dixon.
At this point, Cronwell had been working for the city of Dixon for about 12 years and had developed quite the reputation. She knew the city's finances inside and out. Anytime anyone had a financial question related to city business, they were almost always advised to ask Rita. And in some ominous foreshadowing, on his way out the door, Roy Bridgman, the finance commissioner who appointed Rita to her new position, described her as, quote,
a big asset to the city. She looks after every tax dollar as if it were her own. The late 1990s saw Cronwell really ramp up her quarter horse operation. She began competing in events at the national level and transforming her seven acre property into a top notch horse breeding facility. While she was at it, she began updating the modest single family home she had inherited from her mother by expanding the living area to 3,500 square feet.
double its original size, as well as installing an in-ground swimming pool. Even then, the property wasn't able to properly accommodate the scale of the operation that Rita had envisioned. So a few years later, in the early 2000s, she purchased what is now known as Rita's Ranch for about $450,000. Rita's Ranch was a massive 87.8 acre property where she constructed a 20,000 square foot barn that housed an entire arena.
Crunwell acquired another 40 acres soon after, as well as 80 acres of farmland and a seven and a half acre ranch in Wisconsin that was maintained by her boyfriend, Jim McKillips, whom was well known in the Quarter Horse community. And in the span of a decade, Rita's collection of horses had exploded from a few handful to over several hundred. As Crunwell's operation and property continued to grow, so did her success.
She became one of, if not the, top breeder of quarter horses in the nation. She won almost every event she entered, including 52 world championships. Between the competition prizes and the breeding operation, quarter horses had become a very lucrative business for Ms. Cronwell. And it had to be, because maintaining a stable of horses that size, from the health care to the grooming, is incredibly expensive. Rita Cronwell was a rock star in the equestrian community.
and she lived like one. She would arrive at the events with the full staff of hired help and a fleet of custom-painted vehicles, including a $2 million mobile home truly fit for a queen. It was furnished with marble countertops, tile floors, five televisions, and even a washer and dryer.
Inside the exhibition halls of the competitions, she would erect a replica log cabin complete with the full bar that served as her own personal shrine, housing her absurd collection of trophies, belt buckles, and expensive decorations. And if that wasn't enough to make her stand out in the crowd, Rita was often dressed extravagantly, donning expensive clothes and exquisite jewelry. Throughout all of her success in the quarter horse industry,
Rita kept her controller gig with the city of Dixon. In fact, neither her coworkers at City Hall nor the residents of Dixon were fully aware of how successful she had actually become. Every once in a while, there would be a small blurb in the local newspaper about an award she had won. But at home, Rita appeared as modest as ever, dressing conservatively at the office and mostly keeping to herself. The downside of her success was that she needed to spend more and more time away from the office.
However, while away, she remained engaged in her duties as comptroller, ensuring that she was accessible by phone and email at all times, and even proposed docking her own pay for the missed time. Rita loved her job, but she wasn't about to let it get in the way of her true calling. Rita Cronwell was living the dream. Meanwhile, her hometown of Dixon was crumbling. Dixon, like everywhere, was hit hard by the financial crisis in 2008.
According to Cronwell's analysis at the time, the city government and people of Dixon needed to make some sacrifices and enact drastic budget cuts in order to remain financially solvent. Services were cut. A third of the street repair department was laid off. Employees did not receive pay raises for at least three years. Vacant jobs went unfilled. Even the municipal band that marches in parades and performs at festivals had their budget cut in half.
compelling the locals to hold a fundraiser to ensure their survival. Although the tough economic times from 2008 to 2011 had most of America pinching their pennies, Rita Cronwell was largely unaffected. It was obvious to the townspeople of Dixon that Rita had money, everybody knew she worked for the city, and that her $80,000 a year salary alone couldn't support her hobby nor her lifestyle. But by this time, her success on the Quarter Horse Circuit wasn't much of a secret anymore.
so most people assume that's how she obtained her wealth. There were also rumors around town that she had received a large inheritance from a distant family member that included a parcel of land in Chicago, which helped her launch her business. Nobody in Dixon knew for certain where Rita Cronwell got her money, but they were about to find out. Support for Swindled comes from Rocket Money.
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When Rita was out of the office on one of her frequent trips, co-workers would often step in and perform some of her work duties on her behalf. In November 2011, Kathy Swanson, the town clerk in Dixon, and just one of the three total administrative employees in the city, was delegated this role. Swanson began preparing the monthly treasurer's report, which was usually produced by Rita, and noticed that they had not yet received the latest bank statement from Fifth Third Bank in Ohio.
which was required to prepare the report. After a few requests to the bank went unfulfilled, Kathy Swanson, losing her patience, called the bank and demanded them to send a statement for every account that the city of Dixon owned. The bank delivered the statements, and while sorting through them, Kathy Swanson found something odd. A bank account in which she was unfamiliar called the Reserve Sewer Capital Development Account, or RSCDA for short.
In the transaction history of the account, Kathy noticed several large deposits. $200,000 here, $300,000 there. But it was the expenses that really caught her eye. There were payments to department stores and gas stations. There were payments for credit cards for accounts that she knew the city of Dixon didn't own. Someone, presumably Rita Crunwell, the only person with knowledge of the account, was obviously using this account for their personal banking.
Swanson pondered if Rita was using the account as a way to hide the earnings generated from her horse business to avoid paying taxes on it, but she didn't know for certain. Honestly, she had no idea what was happening with this account, so she didn't quite know how to approach the situation. Swanson spent a few sleepless nights agonizing over her discovery,
But when the opportunity finally presented itself, Swanson told Dixon Mayor Jim Burke about what she had found. When she came to me with this bank statement, and she said, this is not the city of Dixon's, she said, I'm not sure what to do with this. So when this statement came in, which was tied to nothing, she had thought about actually calling the bank and sending it back to them.
And so that was how we got it. And after seeing the statement, Mayor Burke made a call to the FBI. I went to the FBI. I got a meeting with them at 2.30 on November 18th in their office. I laid the bank statement down in front of him. And we started discussing it. At that point, I literally got sick to my stomach.
The FBI agreed to investigate the matter and instructed Mayor Burke and Kathy Swanson not to disclose what they had found to anyone else, especially Rita Cronwell. The investigation lasted six months, with Kathy Swanson having to pretend that nothing was out of the ordinary in the presence of her coworkers, all the while sharing information with Mayor Burke during secret phone calls and physically moving boxes of documents past Rita's desk for delivery to the FBI.
In the six months that it took for the investigation to conclude, Mayor Burke and Kathy Swanson watched helplessly as an additional $3 million of city funds was transferred to the RSCDA account, but they couldn't intervene for fear of jeopardizing the investigation. The day of reckoning came on Tuesday, April 17, 2012. The FBI arrived at Dixon City Hall inconspicuously around 9 a.m. and met with the mayor in his office.
After some brief small talk to lighten the tension, it was time.
Mayor Burke paged Rita on the intercom and requested her to swing by his office. So she came back and came right in the office, said good morning to everybody. And I was watching her closely. And I said, these three gentlemen got some questions for you. And she said, sure. I was looking at her face. There was absolutely no change of emotion over her face or anything. Mayor Burke exited the room and closed the door behind him.
The FBI questioned Rita for over two hours, and when they finally emerged from the office, Rita Cronwell was in handcuffs. The investigation revealed that in total, from 1990 to 2012, Rita Cronwell had stolen $53.7 million from the city of Dixon.
by transferring city funds to the RSCDA bank account discovered by Kathy Swanson, an account that Cronwell had opened in the city of Dixon's name. In the early days of the scheme, she tested the waters by transferring only small amounts at a time. As the years went on, her confidence grew, and so did her fortune. Towards the end of her reign, months before she was arrested, she was stealing as much as the total operating revenue of the city of Dixon.
Surprisingly, the method she used to pull off a theft of this size wasn't all that elaborate. In fact, it was actually quite simple. Cronwell would transfer funds received by the state of Illinois for Dixon's portion of various state and local taxes into the city's capital development fund, a legitimate fund typically used to build roads and construct bridges or buy equipment or other assets.
she would then create phony invoices for a capital project and pay that invoice using a check out of the capital development fund and those payments would then be deposited into the secret rscda account which only rita had access ultimately she was billing the city of dixon for capital projects that did not exist and instead of paying a vendor she was paying herself simple but effective which leads to the question
How could she have possibly gotten away with this for over two decades? Instead of having a city council and a city manager, Dixon's government consisted of a part-time mayor and four part-time elected commissioners who held executive power in areas of finance, health and safety, public property, and streets.
These commissioners received about $2,700 each per year and weren't exactly what you would call subject matter experts in their assigned areas of oversight. Retired school teachers, a high school gym coach, the owner of a carpet store, and retired barbers had all served as commissioners in Dixon at one point in time. Mayor Burke, who was also a real estate agent, received a salary of about $9,600 per year.
There were also no full-time accountants or CPAs working for the city of Dixon. The entire financial operation of the city rested in the hands of one woman, Rita Crunwell, with virtually no oversight or supervision. This isolation, combined with Dixon's form of government, led to a lack of separation of duties and enabled Crunwell's theft for over 22 years. And if it wasn't for Kathy Swanson assuming Rita's role for a few days that November,
It might have lasted for 22 more. It's an important internal control for the financial positions and organizations to occasionally share duties with another set of eyes, which is one of the reasons that most companies force their employees to take annual vacations. Though authorities believe that Rita Cronwell acted alone, she did receive some assistance from the incompetence and negligence of the accounting firm Clifton Gunderson.
Clifton Gunderson performed payroll duties and bill payments for the city of Dixon. They prepared financial statements and performed annual audits of the city's finances. And for over 20 years, Clifton Gunderson failed to catch on to Rita's scheme, even though all of the evidence was right under their noses. Remember, Cronwell was stealing money by creating fictitious invoices for imaginary capital projects, and these counterfeit invoices were poor replicas, to say the least.
Rita Cronwell may have been a master horse breeder, but she was terrible at Photoshop. There were typos, there was no contact information, and the State of Illinois logo that's in the top left-hand corner of authentic invoices was nowhere to be found on the fakes. A side-by-side comparison with a real invoice leaves no doubt that they are frauds.
And yet, an experienced auditor verified all 177 of the fakes that Cronwell produced over a 20 year period. And if the invoices themselves weren't a dead giveaway, one of the easiest ways for an auditor to verify a capital project, such as, let's say, a bridge, is to travel to the location of the project and see it with their own eyes. Bridges are pretty hard to miss, and if that was too much to ask,
the office of the engineer in charge of Dixon's capital projects, was housed in the same building where the audits took place. And just to think, this entire scandal could have been avoided with a single stroll down a hallway. Due to changes in regulations, Clifton Gunderson was eventually forced to give up the audit portion of the work performed for the city of Dixon, since they also prepared their annual financial statements. But instead of washing their hands of the audit completely,
Clifton continued to perform the audit duties, but had a smaller mom-and-pop accounting firm sign off on it without analyzing a single document. And for their troubles, Clifton Gunderson billed the city of Dixon for over $1 million for services performed during the time period of the theft. Although it was never proven, Reed's cozy relationship with the partners of Clifton Gunderson have led many to believe that there was more to this story than blatant incompetence.
Rita met with the partners frequently for lunches, dinners, and happy hours. She had even played on the Clifton Gunderson Company softball team. Even more disturbing, Rita Cronwell's personal accountant worked at Clifton Gunderson. This is Devin C. Bruce, an attorney representing the city of Dixon.
Who is the one person in the city of Dixon that would actually know how much money Rita Cronwell made or didn't make in her equestrian activities? Her accountant. And who was her accountant?
The same partners that were the head of office in Dixon, that was the relationship partner for the City of Dixon account, was the same accountant that filled out her tax returns for over 20 years. When the news of the scoundrel broke, the citizens of Dixon were angry, and rightfully so. Cronwell's fraud had taken a direct toll on their lives, having led to lost jobs, neglected infrastructure,
and a reduction of city services, and there was plenty of blame to go around. A special meeting was held for the city government to address the citizens, and for the citizens to voice their concerns. The city of Dixon and its finances are what I can call a large business.
And I believe the managers of this large business must be capable of ensuring they know how to manage the finances. To lose 20 or 30 or 40 percent of the revenue a year of the city and not know it is just unthinkable. I do not think anyone really knows what the true finances of the city are at this point. Maybe Rita Crudwell does, but fortunately she is no longer here.
That's why I said I think everybody up there just steps down, give new people the opportunity to come in, run this town the way it should be, be transparent the way that it should be, run those checks and balances and not wait until there's a problem to make changes. Those changes should have been made.
back when they realized years ago that 29 million was missing. And these are elected officials and appointed officials, and they haven't even come forward and said or even apologized for it. And that really does make me mad. - Yeah, that's true.
Well, I was like everyone else, just shocked and unbelieving that would happen. But hey, it happens to bigger cities, it happens to the federal government. Believability. And you gotta believe that things do happen in small towns. Mayor Burke has his own business.
On November 14th, 2012,
Rita Crunwell pled guilty to wire fraud and was sentenced to 19 years and 7 months in prison, receiving nearly the maximum sentence of 20 years.
Here's Mayor Jim Burke. Totally mixed emotions. I'm so pleased that she got that sentence. I'm so pleased to see her taken into immediate custody. And I gotta tell you, it felt very good to see her. To have those handcuffs thrown on her, the other side of the coin is, I just felt what a tragedy it is for her and that she's going to be spending almost 20 years in the prison. As for Rita's prize-winning stable of horses...
They were auctioned off to breeders and collectors from around the world. The auction fetched more than $1.5 million, resulting in the most successful equine auction ever. Cronwell's other assets, such as her vehicles, jewelry, and property, were sold as well. In total, over $12 million was collected from the liquidation of her assets and returned to the city of Dixon.
not even a quarter of what had been stolen from them. However, the auctions weren't the only method of financial recovery. In October 2012, the City of Dixon filed lawsuits against Fifth Third Bank, Clifton Gunderson, and the smaller accounting firm involved in the negligent audits, winning settlements totaling $40 million. As the smoke cleared, the City of Dixon began picking up the pieces.
and began taking corrective actions to ensure that nothing like this could ever happen again. Cronwell's comptroller position was replaced with the finance director position, who implemented proper internal controls and segregation of duties, and an independent panel was created to oversee all financial reporting. And in 2016,
More than 70% of Dixon voters approved to change their form of government to the more common and more accountable council manager form. Mayor Jim Burke's term ended in 2014 and he left office without seeking re-election. And Kathy Swanson, the hero of this case, retired from the city of Dixon in 2016 after 25 years of service.
Even behind bars, Rita Cronwell still receives about $13,000 to $14,000 in royalties from her horses, which is then seized and returned to the city of Dixon. And she has not spoken a word in public since her arrest, not even an apology. Swindled is written, researched, produced, and hosted by me, a concerned citizen. For more information about the show, check out swindledpodcast.com.
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