OIG Investigative Reports, Newark NJ May 11, 2011 -Two Former Executives of Athletic Equipment Company Charged With Extensive Fraud on New Jersey Schools Skip to main contentAbout UsContact UsFAQs Language Assistance Englishespañol中文: 繁體版Việt-ngữ한국어TagalogРусский U.S. Department of Education Search for: Toggle navigation U.S. Department of Education Student Loans Grants Laws Data About ED OFFICES Home Reports & Resources Programs/Initiatives News Office Contacts Investigation Report THE UNITED STATES ATTORNEY'S OFFICE DISTRICT OF NEW JERSEY FOR IMMEDIATE RELEASE May 11, 2011 www.justice.gov/usao/nj CONTACT: Rebekah Carmichael Office of Public Affairs (973) 645-2888 TWO FORMER EXECUTIVES OF ATHLETIC EQUIPMENT COMPANY CHARGED WITH EXTENSIVE FRAUD ON NEW JERSEY SCHOOLS NEWARK, N.J. – The former Chief Financial Officer and Chief Executive Officer of a leading supplier of athletic equipment and reconditioning services are charged for allegedly directing a long-running fraud against schools in New Jersey and elsewhere, U.S. Attorney Paul J. Fishman announced. Mitchell Kurlander, 52, of Allentown, Pa., and his father-in-law Alan Abeshaus, 79, of Highland Beach, Fla., are both charged by Indictment with one count of mail and wire fraud conspiracy. Kurlander is also charged with nine substantive counts of mail fraud and 12 substantive counts of wire fraud. Both defendants surrendered this morning to agents of the FBI and the U.S. Department of Education Office of Inspector General, and are expected to appear this afternoon before U.S. Magistrate Judge Michael A. Shipp in Newark federal court. According to the Indictment unsealed today: At the time of the charged conduct, 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 and 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 the summer of 2007, Circle engaged in a number of fraudulent 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. Duplicate Payment Fraud During the course of the conspiracy, Circle used invoices and statements to schools that were similar in form and appearance. As a result, schools often paid both the invoices and statements. Circle received more than 500 such duplicate payments, collectively worth more than $970,000, from schools and other customers. Kurlander instructed Circle employees to deposit the extra money into the Company’s account, and would keep track of the duplicate payments in a secret bookkeeping account that only he could access. Kurlander would then direct large, special bonuses to be paid to Abeshaus, who used the money, among other things, to pay down a personal mortgage on one of Circle’s buildings at 8 McFadden Road in Easton, Pa. At the direction of defendants Kurlander and Abeshaus, Circle improperly retained at least $822,000 in duplicate payments from various schools with which it did business. Submission of Fake Price Quotes To increase sales, 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 employees would prepare fake, higher quotes at the direction of Kurlander and others. In some instances, those quotes were submitted under circumstances in which school officials knew, or should have known, that they were fake. In addition, Circle employees would at times forge signatures on quotes and conceal the origins of those they mailed and faxed. Circle submitted hundreds of such fake quotes to at least 100 different schools, including more than 60 public schools in New Jersey and schools in approximately 11 other states. Fraudulent Inflation of Invoices As a routine business practice and to ingratiate Circle with school officials, Kurlander and others authorized Circle employees to make gifts and donations to schools and school officials, and often would take officials on golf outings and to meals. Circle routinely recouped these costs by inflating its invoices for services and goods to those schools, and by charging the schools for services never rendered and equipment never provided. 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 fraudulent invoices were also submitted to hide the nature and timing of purchases by school officials. * * * U.S. Attorney Fishman stated: “According to the Indictment, Kurlander and Abeshaus conspired in a marathon of fraud that cheated students, teachers, and the taxpayers who support them. What is worse, the Indictment alleges that school officials took money and gifts to look the other way. Our investigation will continue to explore the scope of this disturbing deception.” FBI Special Agent in Charge Michael B. Ward said, “Public support for interscholastic athletics is a popular, galvanizing force for many communities. In tough economic times, school districts in New Jersey have struggled to maintain athletic programs on behalf of students. The defendants in this case preyed upon school districts through a series of brazen frauds designed to inflate profits and mislead the general public.” “The indictment alleges that these corporate executives and the educators that may have participated in this scheme willingly abused their positions of trust by defrauding school districts, students, and taxpayers for personal financial gain. Such egregious conduct is unacceptable,” said Steven D. Anderson, Special Agent in Charge of the U.S. Department of Education Office of Inspector General’s (OIG) Mid-Atlantic Region, who led the OIG effort together with Special Agent in Charge Brian M. Hickey of the OIG’s Northeastern Region. “I’m proud of the work of our OIG special agents and our partners in law enforcement in holding these individuals accountable for their actions.” Each of the 22 counts in the Indictment carries 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. The Indictment also seeks the forfeiture of any money and property from proceeds traceable to the commission of the offenses, including the Easton, Pa., property. 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. U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward in Newark; and 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 the charges. The government is represented by Assistant U.S. Attorney Eric Kanefsky of the U.S. Attorney’s Office Special Prosecutions Division in Newark. The charges and allegations contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty. If you were a customer of Circle Systems Group, Inc., your organization could be a victim in this case. If you believe that you might be a victim, please email your name, address, phone number and a brief description of how you feel that you are involved in this case to CircleVictim@ic.fbi.gov. 11-191 ### Defense counsel: Mitchell Kurlander: William A. DeStefano Esq., Philadelphia Alan Abeshaus: Kevin H. Marino Esq., Chatham, N.J. Kurlander, Mitchell and Abeshaus, Alan Indictment (Circle Systems) Top Printable view Last Modified: 06/03/2011 How Do I Find... 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Two Former Executives of Athletic Equipment Company Charged With Extensive Fraud on New Jersey Schools. Newark NJ., May 11, 2011
Published by the Department of Education, Office of Inspector General on 2011-05-11.
Below is a raw (and likely hideous) rendition of the original report.