Thursday, July 29, 2004

Guilty plea in gym scam

Company that supplied fitness gear locally defrauded Minn. schools

The Associated Press

MINNEAPOLIS - The head of a company that supplied fitness equipment to a foundation accused of ripping off schools across the country has pleaded guilty to defrauding 19 Minnesota school districts and six banks of more than $1 million.

Joseph Mont Beardall, 49, the owner and president of School Fitness Systems, based in American Fork, Utah, pleaded guilty Monday in federal court to two counts of bank fraud, one count of mail fraud and one count of wire fraud.

School Fitness Systems supplied gym equipment that the National School Fitness Foundation sold to school districts.

The foundation arranged to sell $77.5 million in stationary bicycles, weight machines, treadmills and other equipment to more than 600 schools in Ohio and 19 other states. Ohio schools, including many in Greater Cincinnati, bought or leased sets of equipment costing $100,000 to $220,000 for 119 schools.

School districts thought that after purchasing the equipment, the foundation would reimburse them. However, the U.S. attorney's office said Beardall and School Fitness Systems failed to tell the schools and the banks that financed their purchases that the reimbursement funds came from a pyramid scheme in which money from newly enlisted schools was used to make token reimbursements to schools that participated earlier.

Along with Beardall's plea, a representative of School Fitness Systems pleaded guilty on behalf of the company to one count of mail fraud and one count of money laundering. The company will surrender its assets, including bank accounts valued at about $2.6 million.

The foundation filed for bankruptcy protection in June in Salt Lake City, after its assets were frozen by a federal court and it was ordered to stop doing business in Minnesota. Court documents traced a web of business ties between foundation officers and equipment suppliers that allegedly charged schools "highly inflated prices" for sports gear and kicked back 60 percent of their proceeds to the charity.

Court papers filed with the bankruptcy proceeding show schools are owed as much as $340,000 each.

The foundation, based in American Fork, referred a request for comment to its bankruptcy trustee, who did not immediately return a phone call. Beardall's Minneapolis attorney, Kevin Short, also did not immediately return a call. Investigators said the banks covered by Beardall's plea, which financed the school districts' purchase of fitness gear, are in Superior, Colo., and Granite Falls, Sauk Centre, Park Rapids and Byron, Minn.

Beardall, of Highland, Utah, agreed to pay restitution by selling his $1 million house and other assets; the money will be divided among the school systems that have money coming.

No date for Beardall's sentencing was set, but federal sentencing guidelines recommend 33 to 41 months in prison, prosecutors said. His company faces fines of up to $500,000 or twice its gain from the offense.

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