The Betrayal Issue

The Woman Who Bilked Reagan’s Hometown Out of $54 Million

Rita Crundwell made herself fabulously rich at the expense of her trusting neighbors. She might have done them a favor.

DIXON, Illinois — “You have not been doing your job,” said a gray-ponytailed man in flannel once he got to the microphone. City Council members and the mayor sat stone-faced on the dais, absorbing this and similar blasts of anger from the public, still grappling with the shock of the crime they’d discovered far too late. “As far as I’m concerned, you’re all fired. Thank you very much.” Among the scores of citizens of Dixon, Illinois, who had packed the council chambers, lined stairwells, spilled out the front door of the red brick building and across the street into the library parking lot, this was not an uncommon sentiment.

It was the spring of 2012 and nearly three weeks had passed since police had marched Rita Crundwell, the town’s well-liked comptroller, out the door of that very same building in handcuffs. In that time, the magnitude of her betrayal had grown clearer, and more dumbfounding: At first the feds believed she’d “misappropriated” $30 million from the coffers of this small town of about 16,000, but now the figure was close to $54 million. The place previously best-known as Ronald Reagan’s childhood home, site of the Petunia Festival and the Catfish Capital of Illinois, was now also the home of the largest municipal fraud in United States history.

What had so enraged the citizens of Dixon was that until late 2011, no one seemed to notice this theft – for some 20 years. Dixon’s finances had not only passed annual independent audits but also audit reviews by the state of Illinois. The bank that handled city accounts had never flagged anything amiss. Yes, the city had struggled financially, then-Mayor Jim Burke acknowledged at the press conference announcing Crundwell’s arrest in April 2012, but Dixon was no different than many other communities around the country: Declining tax revenues, tardy payments from the state, rising health care costs and infrastructure investments all added up, he said, to a “plausible reason for the financial problems our community is facing.” Burke did not note that all of this had happened as Crundwell herself was building a nationally renowned horse-breeding empire, racking up awards and riches while only making about $80,000 a year in her day job. Burke vowed to help the FBI investigate and recover the assets. He did not take questions.

Crundwell’s arrest itself had begun to answer many of the more basic questions: why city budgets had faced such steep cuts for years; why some municipal vehicles had holes in the floors and the ambulance spewed smoke; why sidewalks were crumbling and pipes disrepaired to the degree that, within a few years after Crundwell’s arrest, a sinkhole would open up on West 7th Street like some kind of ham-handed metaphor for disappearing taxpayer dollars. Police had stopped using the road along the picturesque Rock River as a speed trap because no one sped there anymore: The rutted pavement damaged cars at high speeds. “Have you ever heard the phrase ‘We grew up poor, but we didn’t know it?’” asked Matthew Lenox, who was 16 at the time of the arrest and now works for the Dixon Chamber of Commerce. “That’s very indicative of Dixon at that time.”

But now the shock of April had become the simmering rage of early May. Citizens had come armed with justifiable questions about the performance of the people they had elected to protect their interests: How, in such a small town, could someone steal so much and get away with it for so long? How could the city’s leaders simply not catch on to the disappearance of tens of millions of dollars? The crowd included the usual gadflies — the man well-known for driving a Dodge truck around town with a sign accusing the mayor of being a “dictator on steroids;” the woman who had noticed a jump in her water bills and had taken to asking the council whether the pipes were lined with gold; and a local businessman and Tea Party activist named Liandro Arellano, Jr., who liked to monitor the council’s doings and disliked Dixon’s archaic government structure. But most of the standing-room-only crowd were new to the meeting. “It’d be nice to see you on a regular basis and not when there’s such huge drama here in our city,” remarked Councilman Dennis Considine dryly. “But I’m thankful you’re here, anyway.”

The other council members mostly kept mum as Dixonites demanded resignations, or, in rare cases, defended the city and its management. “Mayor Burke has his own business,” one speaker said. “Would he turn all financial controls over to an employee of his business, with the almost total lack of oversight that this city had had? Would he run his business that way? That’s the way he ran Dixon.” There was an ongoing FBI investigation, and only so much officials could say in their own defense, even while they grappled with their own anger and sense of betrayal by a close colleague.

Accountability was surprisingly easy, at least when it came to Crundwell herself. She pleaded guilty to wire fraud and in February 2013 a judge sentenced her to nearly 20 years in prison. But accountability for the people who hadn’t done anything specifically wrong — but were seen as having failed nevertheless — would be a harder and longer process. How does a town repair bonds of trust that it didn’t know were broken?

Money helped.

The U.S. Marshals auctioned off Crundwell’s assets, which were really Dixon’s — including five properties, dozens of cowboy hats, $250,000 worth of jewelry, 400 horses and a large quantity of horse semen that fetched $98,500 — clawing back about $10 million for the city. The city got roughly a further $30 million in lawsuit settlements from the auditors and bank involved, neither of which had caught on to the theft. But more needed to be done to heal, and ultimately it would be: In 2015, the city redesigned its form of government to introduce more transparency and professionalism, voters threw out the entire city council, and Arellano, the former Tea Party activist, became the mayor.

Americans’ trust in government has been sliding for decades. Some notably colossal failures have contributed to that — the Iraq war and the financial crisis of 2008, among others. Dixon’s own Ronald Reagan famously said that government was “not the solution to our problem; government is the problem,” and this view remains popular in his party and beyond. Dixon’s fleecing, at first blush, confirms that cynical view of government as an insiders’ game rigged by thieves and enabled by incompetents. The city had failed to heed the Republican president’s other famous saying — “trust but verify” — and Crundwell, in the absence of any oversight, had exerted a stranglehold over city finances. Forced to confront the appalling consequences of that failure, Dixon has turned into an unlikely lesson in good governance. Slowly, and no doubt incompletely, officials have won back some measure of civic trust through such basic measures as checks and balances, transparency and service delivery. As a rural town with an economic past rooted in manufacturing and now-faded department stores, Dixon also fits a stereotypical mold of a declining Midwestern city, even before you get to the historic embezzlement. But history isn’t destiny, and Dixon has managed to reinvent itself as an artsy town of thriving small businesses, surrounded by farms and state parks.

To walk around downtown Dixon now is to see the results of what locals call “Rita money”: smooth streets, renovations at the public library and, underground, a network of pipe replacements. You could speed down the River Road now if you wanted to, but you still shouldn’t, especially since it has a shared-use path for joggers and bikers. “I think the city came out of it actually better,” said Geoff Vanderlin, who used to work in circulation at Dixon’s newspaper and now gives tours at the nearby house where John Deere first started making steel plows. “We’re actually in a better place than a lot of cities here in the Rust Belt.”

Lenox is now 28 — “officially old,” he says — and moved back to Dixon after college to spend his working days enthusiastically boosting the town. In that spirit, he argues that Dixon is in the midst of a “rural renaissance,” the kind of community that can connect urban and rural, and that has a strong cultural scene despite its size.

Strangely enough, this renaissance really got going because of Rita Crundwell.

She even lied about the lying.

When the FBI sat her down in early 2012 to explain herself, Crundwell told investigators she needed the money in about 1999 or 2000 to buy a $125,000 quarter horse named Sheza Telusive Kid.

But Crundwell’s theft actually had begun about a decade before she bought that specific horse, one of the FBI agents who interviewed her testified at her sentencing hearing. In December 1990, she opened up a new Dixon city bank account no one else knew about. The horse name was as fun and flashy (say it out loud, fast) as the account name was nondescript and boring: the Reserve Sewer Capital Development Account, RSCDA for short. In 1991, according to prosecutors, she took her first $181,000. That initial tranche of stolen funds went to $3,000 diamond stud earrings, other jewelry and a nearly $19,000 boat with “a deluxe buggy top, wet bar, propane grill and playpen cover,” according to government exhibits. Thus by such drab means did Crundwell fund what became a glittering lifestyle, ultimately including a tricked-out $2 million Liberty Coach motorhome and a whole fleet of horses with names like She Scores, Packin Jewels and Careful Who U Invite.

The crime was simple to execute. As the author and accounting professor Kelly Richmond Pope explained in her documentary All the Queen’s Horses and in her new book Fool Me Once: Scams, Stories, and Secrets from the Trillion-Dollar Fraud Industry, the city of Dixon held six legitimate accounts at Fifth Third Bank — a capital development fund, a sales tax fund, a motor fuel fund and so on. Crundwell would move money from other funds into the legitimate capital development fund, then create fake invoices ($350,000 for a sewer project, in one instance), billing the city for work that either never got done or that the state had paid for, and moving the money into her own RSCDA account. From there, she could withdraw at will ($225,000 of the supposed sewer money went to the purchase of a horse named Pizzazzy Lady, according to the Justice Department). In this way, she wasn’t so much skimming off the budget as dredging its very depths: According to Chicago Magazine, in a single five-month period, she stole $3.2 million, which was more than city’s entire $2.9 million budget in that interval.

All that embezzlement had its effect on the city’s financial health, in the form of deferred maintenance, draconian budget cuts to city services and the threat of layoffs. When asked, Crundwell attributed the cash crunch to late payments from the state, or, later, to the national financial crisis. People believed her. At one point, according to prosecutors, she told a street superintendent seeking to replace an unsafe truck: “If you know where there is a money tree, let me know.” As part of the government’s case against her, prosecutors offered a slideshow that juxtaposed, year by year, city budget cuts with Crundwell’s private acquisitions.

Take 1997, for example. The police department cut $5,000 for overtime, and the streets department cut $5,000 from the sidewalk budget. That year, Crundwell purchased a $6,840 custom saddle and a $4,950 golf cart. In 2000: The city deficit stood at $370,674; the fire department cut its motorized equipment budget by $26,000 and eliminated its $46,000 assistant fire chief position. Crundwell spent $450,000 on home remodeling, “adding an underground garage, an in-ground pool and more than doubling the living space to 3,484 square feet,” according to a government exhibit. In 2009: The city’s deficit had surpassed $1 million; the finance commissioner said layoffs might be necessary; the ambulance equipment budget was cut by $38,000; and there was no money available for street work. Crundwell hit her peak theft year after taking nearly $5.6 million, buying a Florida house, a horse trailer, a Ford Thunderbird, a Chevy pickup truck and two horses (Pizzazzy Lady and Unforgettable).

Crundwell also spread the wealth around Dixon enough to make friends without, apparently, attracting too much scrutiny. “She was one of my best customers,” said Dan Willard, who owned a grocery store in town at the time. She was nice, “as normal as could be, except she knew how to get away with millions, and did it;” she frequently left the store with three carts full of items to take on her travels. She would leave lavish gifts for the city hall staff, Considine said. “I said, who the hell is giving away Hermès scarves? You don’t even know what an Hermès scarf is.”

The reasons for official malfeasance are as numerous as the cases themselves, whether they stem from desperation, entitlement, opportunism, narcissism, or any other perfectly human impulse. “If there was an open safe in the middle of the street, and there is money just pouring out of it, how many of us would just walk by that safe?” Pope asked. “Dixon was an open safe to Rita.” And though the scale of her theft was historic, the fact of her corruption was not unique in the U.S., least of all in Illinois which, according to an investigation by ABC7 Chicago, racked up 891 convictions for public corruption between 2000 and 2020 — the most of any state in the nation. Ex-Illinois Governor Rod Blagojevich famously served prison time after an attempt to sell the U.S. Senate seat being vacated by then-president-elect Barack Obama in 2008, but he was only one of four of Illinois’s past 10 governors to wind up behind bars for either public corruption or private fraud. Nor did the Crundwell case scare the state straight: Just this May, four people were convicted of attempting to bribe former Illinois House Speaker Mike Madigan, whose own corruption trial is scheduled for next spring.

Burke, Dixon’s mayor at the time of Crundwell’s theft, later speculated the comptroller might have intended, at first, to pay the city back. But somewhere along the way — after the first million? after the first $10 million? — that must have seemed impractical. Frank Langholf, a Lutheran pastor who visited her when she was being held in the county jail, told me their discussions led him to think she had an addiction, though he wouldn’t cite specifics for confidentiality reasons. Crundwell has never told her own story publicly, despite many requests: Her brother, Richard Humphrey, once asked Pope, the accounting professor and documentarian, to pay Crundwell’s restitution plus extra living expenses as a condition of an interview. The restitution was $53.7 million — the amount Crundwell stole — and Pope declined. (My own attempts to reach her through Humphrey, other relatives and her lawyer were unsuccessful; the lawyer said he’d advise her not to talk to me.)

The reasons why Crundwell escaped detection for so long are easier to diagnose.

Dixon had its own built-in weakness: a commission form of government, which combines executive and legislative functions into a city council that both passes ordinances and runs municipal departments. Galveston, Texas, first implemented the model to help the city rebuild after a hurricane, in the belief that it could streamline policymaking and implementation, while also preventing a single mayor from getting too powerful by distributing executive authority among several elected officials. The commission form flowered in the 20th century before mostly fading out as cities found more-efficient ways to govern. No large U.S. city has one now except Portland, Oregon, and it’s rare even among smaller cities.

The structure had two big disadvantages relevant to the Crundwell case. Firstly, it was missing the typical checks and balances that other cities institutionalize by having one set of people to make laws and another, separate set to execute them. Secondly, because commissioners had day jobs and did city business only part time, the system was vulnerable both to apparent conflicts of interest and to leadership inexperience. Mayor Burke, for instance, ran a real-estate firm, which led to accusations that he made economic development decisions to benefit his own business. Councilman Considine, having spent a career in the beauty industry, ran the fire and public safety department. Another councilman, Roy Bridgeman, who served as finance commissioner, had taught typing at the Dixon High — including to Rita Crundwell.

The irony is that a system designed in part to prevent elected officials from accumulating too much power left an opening for an unelected official to seize a great deal of her own. Crundwell’s turn as comptroller started soon after she graduated high school and spanned 20 years — through five city councils, three mayors and three finance commissioners. She’d designed the city book-keeping system, which was impenetrable to basically all city officials but her, and everyone seemed fine with that. As Bryan Smith detailed in a Chicago Magazine profile of the case, Dixon’s checks, deposits, financial statements and funding requests were all in the grip of one person: Crundwell. She wasn’t just exploiting the system. She was the system.

In an accidentally prophetic line that would later prove irresistible to journalists and a judge, Bridgeman, on stepping down from the city council in 2011, praised Crundwell: “She looks after every dollar as if it were her own,” according to a summary of his remarks in the meeting minutes.

As for why no one else noticed the fraud, Pope told me, “an audit is not designed to find fraud.” Audits are “designed to provide reasonable assurance that the financial statements provided by management accurately reflect what management has said the organization is doing.” The “management” providing the statements in this case, and specifically tailoring them to look like they reflected legitimate business, was none other than Rita Crundwell. The Illinois audit “review” was also a bit of a misnomer, according to Pope: The state acts “as more of a repository. It’s not as though another audit happens at the state level.”

This all could have kept going but for one municipal clerk in a bit of a hurry. Kathe Swanson relays in All the Queen’s Horses how, with Crundwell away on one of her extended horse-related absences (during which the comptroller scrupulously docked her own pay, further cementing her reputation as a responsible steward of taxpayer money), Swanson assumed some of Crundwell’s duties. Lacking time to request bank statements by name, Swanson asked to review all of them, thereby discovering an account she’d never seen before, and to which only Crundwell seemed to have access. This was the RSCDA account, and Swanson, unable to find an explanation for it, took it to the mayor. Burke asked if it was possible the account was meant to pay for some project neither of them were aware of. “And she said, ‘No, I’ve looked at everything. I can’t tie this bank statement back to anything that we’re doing,’” Burke later told Sauk Valley Newspapers. That’s when he called the FBI.

The two of them kept quiet for six months while the FBI investigated, up until the day in April 2012 that Burke called Crundwell into his office on the pretext of discussing some DVDs about Ronald Reagan. There waiting for her were two FBI agents, and, in Burke’s recollection to Sauk Valley Newspapers, she didn’t flinch or change her expression. “I thought, ‘Boy, pretty cool customer.’” When Crundwell was sentenced on Valentine’s Day of 2013, Swanson said in All the Queen’s Horses that she’d closed her eyes to listen to the click of the handcuffs. “I knew that justice was served.”

Swanson is, by all accounts, the hero of the Crundwell story, but she never meant to be a whistleblower and didn’t seem to like it much. In between thrashings for councilmembers at the May 7 meeting, one citizen proposed a Kathe Swanson Day for the city; Fraud magazine dubbed her “Dixon’s Quiet Hero” and its affiliated organization, Association of Certified Fraud Examiners, gave her its Sentinel Award in 2018. But the episode, and the secret she and Burke had to keep, took a toll on them. Burke told Sauk Valley Newspapers that Swanson seemed stressed out by the burden, and she retired not long after Crundwell’s sentencing and moved to another town. She is, she told me in a text message, sick of talking about Crundwell and focused on her own health. “She does not deserve any more of the spotlight.”

Dixon never did recognize a Kathe Swanson Day but, according to Vanderlin, it should have. “She’s one of the tragedies of this whole thing,” he said. He didn’t know Swanson very well but stopped by her office not long after Crundwell’s arrest. “I just said ‘Thank you,’ and stood there. … And she just absolutely burst into tears. She never got the recognition she deserved for what she did. And it ended up with her resigning from her position because she just couldn’t take it anymore.”

Mayor Burke died within a year of leaving city government. He had cancer, but Vanderlin said he’s convinced the Crundwell affair helped kill him.

In the summer of 2021, Crundwell herself returned to Dixon. She’d only served about eight years of her sentence when the Bureau of Prisons released her, without notice to the city, under legislation allowing for the release of some prisoners at high risk from Covid due to age or other factors. (At the time, Crundwell was 67, and wrote to a judge that she had chronic hypertension, high cholesterol and bad kidney function.) And though the Bureau does not disclose the location of prisoners released to home confinement, Crundwell’s release plan indicated she planned to live with her brother Richard Humphrey in Dixon.

“It is a complete travesty of justice,” said Danny Langloss, Dixon’s former police chief and current city manager, who had lobbied against Crundwell’s release. “It opened some scabs and some wounds. But I think the community [is] past that, as best we can be.” Indeed, Crundwell’s reputed presence had little effect on city life; her brother, Richard Humphrey, even claimed in a brief phone call to have “run her out” before declining to discuss her further, though there is no record of any change to her release plan.

Dixon was doing all right when I visited last summer, at least to hear it from the folks at Books on First, where everybody seemed to know everybody (“Like ‘Cheers’ for recovering alcoholics,” one patron remarked). But they were over talking about Crundwell; they’d been through it a decade ago when the national media, and Pope, had descended on Books on First after the story broke. “Rita again?” one smiling bookstore patron asked.

Councilman Considine happened to be one of the regulars here; he was back on the council after briefly losing his seat after a single term in the throw-the-bums-out post-Crundwell wave election of 2015. He was nearing 80 when I met him, a proud gay man who came out at 55 and has been married 20 years to the man who owns the nearby Aveda salon. “It makes me sick to my stomach sitting here talking to you about it,” he said. “I haven’t thought about it for a long time because … I get really, really angry. … I want to move forward. I’ve had enough of Rita Crundwell.” At the barbershop, a man who asked not to be identified said he’d shoot her if he saw her downtown and took out what appeared to be a .22 pistol as proof, though Gary Janssen, a Vietnam veteran retired from a career in manufacturing, said “I don’t know if it does any good to keep her in prison — as long as her wings are clipped, she can’t do any more damage.”

Near the river the city was small-town lively, bustling without being crowded. Liandro Arellano Jr., the one-time city council critic who later served as mayor from 2015 until this spring, took me on a walking tour of the riverfront and the businesses along First and Second Streets, a short jaunt from City Hall, and pointed out the improvements made with “Rita money,” including one very big intangible one: The city paid down some $21 million in debt before investing in anything else. He noted the new downtown businesses and the revitalized old ones, and the renovations to the historic community theater, which was advertising a showing of “Menopause The Musical” by Dixon-born playwright Jeanie Linders. A boutique on 1st Street had a sign advising: “People who say money can’t buy happiness don’t know where to shop.” (Considine ran for mayor when Arellano retired this year, losing to another Books on First regular, Glen Hughes.)

Another intangible change: Dixon voters didn’t just throw out their council but their form of government itself, separating the legislative role of the City Council from the executive role of the city manager (whom the council appoints). Langloss, the current city manager, said the job functions like a that of a CEO, with a code of ethics not to get involved in politics. “The council really becomes a board of directors and the staff are in charge of running the operation day to day.”

More checks and balances, yes, but still no matter the form of government, someone has to hold power, and there’s no inherent reason an appointed city manager would be immune from abusing it. (The former city manager of Bell, California, was convicted of corruption, along with six other city officials, in 2014.) Meanwhile, the city has also instituted new financial controls, separating out functions once all concentrated in the person of Rita Crundwell. And one study suggests that city manager-run governments are indeed less susceptible to corruption; for one thing, an appointed city manager does not depend on campaign contributions the way an elected mayor does. Then again, though, neither did Crundwell.

Not everyone was convinced that Dixon was better off, however. After Crundwell’s arrest, Jennifer DeMaria, the woman who complained frequently about her water bills, founded an Occupy Dixon Facebook group to organize protests outside City Hall. They never attracted more than a handful of people, but they did serve as an outlet for some like DeMaria who had long suspected something terribly wrong with the city and saw Crundwell as merely a symptom. As for the new investments since, DeMaria still hasn’t seen her water bills go down, and the roads on the West side of the city, where she lives, still aren’t great. She said she’s not impressed with improvements to the riverfront, because she says there are too many bugs to walk around down there anyway. “Where is all this Rita money?” she asked. “How come we haven’t been given tax breaks and things like that?” Any improvements are all on the wealthier side of town, she said. “They take care of the rich folks.”

Lenox of the Chamber of Commerce remains a relentless booster of Dixon. His family has lived in the area since 1870, and they’ve seen its resilience from the Great Depression through Rita Crundwell. We were chatting over a beer at a waterfront bar called Tipsy, which incidentally was owned by Crundwell’s estranged sister Linda Burkitt, who stopped speaking to her well before her arrest. (Even from childhood, “whatever Rita wanted, Rita got,” Burkitt told me to explain their falling out. “I was like, mom! What about me?”) The last Dixon City Market of the summer was on, and people were out strolling among the stands by the waterfront, where vendors were selling CBD and tie-dyed clothing and jewelry and cheese curds and Puerto Rican food. Lenox was excited about a “huge influx of entrepreneurs” into the community, many of them under 40, and he was working on making Dixon a hub for addiction recovery, through a recovery home and other initiatives. “For the first time,” he said, “Dixon is looking forward and not trying to solve yesterday’s problems today.”

As for what his town could teach the rest of America, he said Dixon is a model for what a little introspection can do, “a little reflection on what you can be, versus where you are.” Outside, the petunias were in bloom.