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A small city is in the news for a big alleged swindle. The treasurer of Dixon, Illinois, faces federal criminal charges. She's accused of stealing more than $30 million from the city coffers. It's a staggering amount of money for a city of just 16,000 residents. Federal prosecutors say she used the money to fund a highly lavish lifestyle. NPR's David Shaper tells us more.

DAVID SCHAPER, BYLINE: Federal prosecutors charged the woman who has been the trusted treasurer and comptroller of little Dixon, Illinois, for close to 30 years with fraud - for allegedly misappropriating more than $30 million in city funds since 2006. FBI agents arrested 58-year-old Rita Crundwell Tuesday, and led her out of Dixon'x City Hall in handcuffs, leaving the people of Dixon...

LINDA DURHAM: Just shocked that somebody could get away with all that.

SCHAPER: Linda Durham owns the Alley Loop Saloon in downtown Dixon.

DURHAM: Someone that is from your town, you went to school with, and everyone around here assumed was trustworthy and, you know, actually a nice lady, a wonderful person.

SCHAPER: Durham says everyone in Dixon knew Crundwell as a successful horse-breeder - one of the best in the world, according to the American Quarter Horse Association, which says she produced at least 50 world-champion horses. And Durham says everyone assumed Crundwell's money came from that.

DURHAM: She had come in here once in a while - not very often - kind of kept to herself a lot, you know. And everyone figured everything was on the up-and-up because of the horses and - you know, who looks into how much things cost?

SCHAPER: But federal authorities say it was the other way around, that Crundwell used tax revenue to fund her horse-breeding operation, among other things. And the amount she allegedly pilfered - 30 million over five to six years - represents a huge chunk of the budget for this quiet town along the Rock River, which is most famous for being the boyhood home of President Ronald Reagan.

Prosecutors say Crundwell spent public money on an extravagant lifestyle that included two horse farms, pickup trucks, semis, a convertible, horse trailers, and hundreds of thousands of dollars' worth of jewelry. Her biggest single luxury allegedly paid for with Dixon taxpayer funds: a $2.1 million motor home.

SHANNON WOODWARD: Well, it really is the ultimate class. It is the highest-end motor home you can get.

SCHAPER: Shannon Woodward is marketing manager at Featherlite Coaches, which makes custom motor homes similar to the one the feds have now seized from Crundwell.

WOODWARD: Well, in a $2 million motor coach, you can expect to find all the luxuries that you would find in a very high-end home - so marble panel flooring, things like Viking appliances, whole-house, touch-panel control systems...

SCHAPER: Mayor Jim Burke says Crundwell explained away Dixon's financial shortfalls by pointing to the weak economy and late state payments, while shuffling around millions in city funds through multiple city accounts. And annual outside audits found nothing out of the ordinary. While Crundwell was away last fall, though, her fill-in, the city clerk, found a city account no one else knew about - with millions of dollars missing.

Mayor Burke says he took that evidence to the Rockford office of the FBI.

MAYOR JIM BURKE: While meeting with Agent Pat Geary in his office and presenting the information to him, I literally became sick to my stomach and told him, I hoped that my suspicions were all wrong.

SCHAPER: But the mayor says he now sees those same sick feelings on the faces of many people in Dixon, as he placed the city's only financial official on unpaid leave, pending the outcome of her criminal fraud case. At a court hearing late Wednesday, a judge released Rita Crundwell on a recognizance bond, with restrictions. As she left the federal courthouse in Rockford, she and her attorney did not comment. David Schaper, NPR News, Chicago.

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