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Schools
Caught In Fitness Equipment Scam Have To Wait
Jul 27, 2004
Minneapolis
(AP) School
districts across the country that were caught in a fitness equipment fraud
scheme will have to wait to see how much money they'll get back.
Joseph Mont
Beardall, 49, the owner and president of School Fitness Systems LLC, pleaded
guilty in federal court here Monday to defrauding six financial institutions and
Minnesota school districts of more than $1 million.
Beardall
agreed to sell his $1 million home in Highland, Utah, and liquidate $150,000 in
other assets to pay restitution. The company will surrender its assets,
including bank accounts valued at about $2.6 million.
But the $3.7
million in assets being surrendered under the plea deal will cover only a
fraction of the losses incurred by potentially hundreds of schools across the
county. The full extent of those losses still isn't clear.
"I don't
know if anybody quite knows that yet," said Greg Brooker, an assistant U.S.
attorney in Minneapolis.
Another
assistant U.S. attorney, Hank Shea, said a judge will have to decide how to
distribute the assets of Beardall and his company to provide restitution to
school systems nationwide. He said he expects any decisions and payments are at
least several months away, partly because of the ongoing investigation.
On a separate
track, a charity that worked with Beardall's company, the National School
Fitness Foundation, filed for Chapter 11 bankruptcy reorganization last month.
It isn't clear
yet how much money the bankruptcy proceedings might make available for
reimbursing schools -- or how long that will take, Brooker said.
"The
verdict is still out. The story has to run its course with the foundation,"
he said.
For now, the
foundation's assets are under control of a bankruptcy trustee in Utah. The chief
U.S. trustee for the region in Denver, Charles McVay, was traveling and did not
immediately return a call from The Associated Press on Tuesday. But in its
bankruptcy filing, the foundation listed assets and liabilities of up to $10
million each.
Beardall
admitted in court Monday that his company, along with the foundation, which is
based in American Fork, Utah, pitched to schools a deal in which they could
essentially get exercise equipment for free. The told the schools they would buy
the equipment from his company and then get reimbursed with money the foundation
would raise from grants and donors. Instead, he admitted, the money really came
from newly enrolled districts.
Minnesota
Attorney General Mike Hatch has called the arrangement a pyramid scheme.
Altogether,
the company and foundation arranged to sell $77.5 million in equipment such as
stationary bicycles, weight machines and treadmills to more than 600 schools in
20 states, including 19 school districts in Minnesota.
For a number
of districts, the deal worked out. But many districts took out bank loans for
which they're still liable. Court papers indicate some schools are out as much
as $340,000 each.
In Minnesota,
for example, the Yellow Medicine East district in Granite Falls had to
reorganize nearly $600,000 in debt after the arrangement foundered. A local bank
agreed to cut the interest rate and restructured the payment schedule.
Superintendent
Dwayne Strand said that move essentially bought his western Minnesota district
another year to look for other sources of funding. He said he was still waiting
to find out how much restitution his district might get.
"We're
certainly hopeful that we'll get as much as we can," Strand said.
In the next
year, he said, the district will look for other sources of grants to cover the
nearly $600,000 it still owes for equipment, which went to four fitness centers.
He said the district still wants to work toward the program's stated goal of
reducing obesity among young people.
"Certainly
we believe we went into it for all the right reasons," Strand said.
Beardall
entered his plea one month after the foundation fired its president, Cameron J.
Lewis, after he and his father were accused of misappropriating $5 million in
foundation money.
A complaint
filed in bankruptcy court in Utah said Lewis used foundation funds to buy
himself an airplane and finish a $500,000 house in Highland, Utah, among other
things. He has denied wrongdoing.
Nobody else
has been charged so far, but prosecutors said Beardall agreed to cooperate with
the government in its continuing investigation.
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