MINNEAPOLIS, MN — Non-profit and fraud — these words aren't supposed to go together, but the president of a Utah non-profit group and the owner of a Utah fitness company have been accused of defrauding several school districts around the United States of millions of dollars.
In a Minneapolis, MN District Court hearing on July 19, 2004, Joseph Mont Beardall of Highland, Utah, pled guilty to two counts of bank fraud, one count of mail fraud and one count of wire fraud for mismanagement of money from fitness equipment sales to schools across Minnesota. His company, School Fitness Systems LLC, and a non-profit group, the National School Fitness Foundation (NSFF), offered schools a deal where they could buy fitness equipment and training through Beardall's company. The schools were required to buy the equipment and services from School Fitness Systems, and NSFF was supposed to pay the schools back over three years by using donations, fundraising and federal grants. However, the NSFF money actually came from school districts that had just enrolled in School Fitness Systems' program. Now, the 600 schools in 20 states that were told they would be reimbursed have been hit hard by costs that the NSFF said they would fund. So far, only $38 million of the $77.5 million has been paid back to the banks that loaned these districts money.
Schools from all over the United States bought into the company's plan hoping to get new fitness equipment for their students. The Box Elder School District of Utah owes almost $250,000, while Pasadena ISD in Houston, Texas, owes more than a quarter of a million dollars. Other schools around the country owe amounts of up to $2 million.
Last month, NSFF's president, Cameron Lewis, resigned from his position after he was accused of misappropriating more than $5 million from the foundation. According to an article in the Salt Lake Tribune on June 22, 2004, Lewis and his father, Ty Lewis, have been accused of defrauding the foundation out of millions of dollars through personal loans repaid at extremely high interest rates, overly generous compensation packages, self-serving contracts and questionable trust accounts. The foundation has now filed for bankruptcy, leaving the school districts to fend for themselves.
During the hearing, Beardall (and School Fitness Systems) admitted to knowing that the foundation had convinced school districts to buy into the program by telling them that the fitness equipment would be free once the schools were reimbursed by the NSFF. They also admitted to knowing that the company was in a bad financial position, but didn't tell prospective clients about their financial troubles.
In his plea agreement, Beardall has agreed to pay restitution by selling his home, worth $1 million, liquidating his $50,000 IRA account, and the interest in his family foundation trust, which amounts to almost $100,000. Found guilty in court in July, he could face almost three years in prison. School Fitness Systems pled guilty to one count of mail fraud and one count of money laundering, and will now have to surrender its assets, including $2.6 million in its bank accounts. The company could face up to $500,000 in fines.
The foundation will now be taken to bankruptcy court in Utah, and a civil case is being filed against them by the U.S. Attorney's Office in Minnesota.