Two Former Executives of Athletic Equipment Company Admit Extensive Fraud on New Jersey Schools

NEWARK, NJ—The former chief financial officer and chief executive officer of a leading supplier of athletic equipment and reconditioning services today admitted their roles in a conspiracy to defraud schools in New Jersey and elsewhere, U.S. Attorney Paul J. Fishman announced.

Mitchell Kurlander, 54, of Allentown, Pennsylvania, and his father-in-law, Alan Abeshaus, 81, of Highland Beach, Florida, each pleaded guilty before U.S. District Judge William H. Walls in Newark federal court to one count of mail and wire fraud conspiracy. They were indicted in May 2011.

“The long-running fraud Kurlander and Abeshaus ran cheated students, teachers, and the taxpayers who support them,” U.S. Attorney Fishman said. “Just as offensive is the conduct of school officials who turned a blind eye to the deceit in exchange for cash payoffs and gifts. The admissions of guilt by these two main defendants will help turn a page on this sorry chapter.”

“For years, Circle Systems Group Inc. utilized deceptive business practices to defraud schools throughout New Jersey and the United States for their own personal gain,” FBI Acting Special Agent in Charge David Velazquez said. “These well-orchestrated schemes not only affected the schools they were defrauding, but innocent students and taxpayers as well. The pleas entered today are indicative of the continuing efforts of the FBI and its law enforcement partners to identify and fully investigate complex financial fraud schemes. “

“The corporate executives and the educators who participated in this scheme not only abused their position of trust for personal gain, but did so at the expense of students at schools across the country. That is completely unacceptable,” said William Hamel, Assistant Inspector General for Investigations with the U.S. Department of Education. “I’m proud of the work of OIG special agents and our partners in law enforcement for holding these individuals accountable for their selfish and reckless actions.”

According to documents filed in the case and statements made in court:

Circle System Group Inc. (Circle) sold and reconditioned athletic equipment, uniforms, and apparel. Although its services were marketed nationally, a large portion of Circle’s business focused on middle schools, high schools, colleges, and youth sports programs in New Jersey.

Circle’s business depended primarily on a sales force that attempted to maintain relationships with the school officials—including athletic directors, equipment managers, trainers, and coaches—who were responsible for purchasing athletic equipment and reconditioning services on behalf of the schools.

From at least 1997 to June 2007, Circle engaged in a number of business practices aimed at defrauding schools, including keeping duplicate payments by schools that should have been returned or credited back to schools, submitting fake quotes to school officials, and submitting fraudulent invoices to schools.

Circle sent invoices and monthly statements of account to schools. Schools often paid both the invoices and statements, paying twice for the same items or services. At the direction of Kurlander and Abeshaus, Circle improperly retained at least $822,000 in overpayments from various schools in New Jersey and elsewhere and converted these overpayments to the personal use and benefit of Abeshaus.

Circle and its sales staff often would provide multiple price quotes, including some that appeared to come from other companies, to allow schools with requirements to obtain multiple price quotes to justify a contract with Circle. Using quote forms with the letterhead of other companies, Circle administrative staff would prepare fake, higher quotes at the direction of Kurlander and others. Circle submitted numerous such fake quotes to schools in New Jersey and elsewhere during the course of the conspiracy.

As a routine business practice, and to ingratiate Circle with school officials, Kurlander authorized Circle employees to make gifts and donations to schools and school officials and often would take officials on golf outings and to meals. Kurlander routinely inflated Circle’s invoices for services and goods to those schools to reimburse Circle for these donations and gifts. Gifts provided by Circle to school officials included computers, digital cameras, flat-screen TVs, golf clubs, leather jackets, and other personal apparel.

Circle sometimes also submitted bid packages and price quotations for goods and reconditioning services that were lower than the prices that Circle intended to charge schools. After Circle obtained a school’s business, Circle would, at Kurlander’s direction, garner its desired profits by fraudulently inflating the quantity or nature of the reconditioning work or by fraudulently inflating other invoices to those schools for reconditioning services.

The conspiracy count to which the defendants pleaded guilty are punishable by a maximum potential penalty of 20 years in prison and a $250,000 fine or twice the gross pecuniary gain or loss from the offense. Sentencing is scheduled for July 9, 2013.

Three other individuals previously pleaded guilty to their involvement in the conspiracy. On December 22, 2008, former Circle president David Drill pleaded guilty to conspiring to defraud, among other Circle customers, various New Jersey schools. Two school officials—former Long Branch High School Athletic Director Charles Ferrara, Jr. and former Elizabeth High School official Robert Firestone—pleaded guilty on November 22, 2010, and January 5, 2011, respectively, to participating in the conspiracy. Ferrara and Firestone admitted, among other things, that they received items from Circle for their personal use and directed Circle to fraudulently bill the cost of those items back to their respective schools. All three await sentencing before U.S. District Judge Dickinson R. Debevoise.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Acting Special Agent in Charge David Velasquez in Newark; special agents of the U.S. Department of Education, Office of Inspector General, under the direction of Special Agent in Charge Steven Anderson of the Mid-Atlantic region; and Special Agent in Charge Brian Hickey of the Northeastern Region, with the investigation leading to today’s guilty pleas.

The government is represented by Assistant U.S. Attorney Lee M. Cortes, Jr. and Senior Litigation Counsel J Fortier Imbert of the U.S. Attorney’s Office Special Prosecutions Division in Newark.