Updated 3/4/11 – 3:00 p.m.

MESQUITE (CBSDFW.COM) – A former sergeant with the Mesquite Police Department is in federal custody, accused of stealing government money.

Sgt. John David McAllister was at a Mesquite gym when federal agents took him into custody on Thursday. He was the head of the department’s narcotics unit and supervised four detectives.

Mesquite narcotics unit duties include; searching suspected drug houses, assisting officers with vehicles suspected of transporting drugs, and working with the Drug Enforcement Administration (DEA).

Late last year the FBI received a tip that Sgt. McAllister, 42, was stealing money found during the execution of search warrants.

The FBI opened an investigation and set up an undercover sting. FBI officials gave an undercover agent $100,000 in cash, that had been counted, photographed and photocopied. Then on March 1, 2011 the undercover agent, driving a vehicle with hidden video recording equipment, was stopped by Sgt. McAllister, his partner and two other undercover officers.

After being escorted away from the vehicle, the driver gave Sgt. McAllister permission to search it. McAllister found the cash, in a plastic bag inside a duffel bag.

The two additional undercover officers asked Sgt. McAllister to drive the vehicle and the cash to the Mesquite Police Department. During the drive video captured McAllister placing his hand in the duffel bag, taking out a bundle of money, and putting it in his pants.

When Sgt. McAllister arrived at the police station he got out, with the cash, and went to his official Mesquite police vehicle. There, he was seen  shuffling things around and then, with the plastic bag in hand and the duffel bag on his shoulder, escorted the undercover officers inside.

Later, when the cash was counted, it was discovered that one $2,000 bundle was missing.

When Sgt. McAllister left the police station, still under undercover surveillance, he drove to Town East Mall, went in a clothing store and was seen leaving with a small bag.

Agents got photocopies of all the money in the store cash register and identified several bills from the sting. Mall surveillance tapes also showed a person, fitting McAllister’s description, entering the store and buying a watch.

Until now, Sgt. McAllister had an unblemished record.  Following Thursday’s arrest, McAllister resigned from the department.

Thursday morning, FBI agents scoured McAllister’s home looking for evidence. Neighbors didn’t know what to think when they saw the house crawling with law enforcement officials. “That would surprise me. That would shock me actually. He appears to be a pretty solid guy,” said neighbor Trice Battle.

Sgt. McAllister made is first court appearance before a U.S. Magistrate Thursday afternoon. If convicted he faces a maximum of 10 years in prison and a $250,000 fine. The husband and father of two has been with the Mesquite police department for more than 21 years and in narcotics for the past five.

Since McAllister resigned, Mesquite Police say their investigation into the case is closed, and that it’s up to the criminal justice system to handle the case.