The bankruptcy trustee for a defunct Utah charity is asking a court to force some public schools to give up money they were reimbursed for fitness equipment to balance underpayments to other schools shorted by the charity.
Schools in Utah and other states that joined the fitness program early and were reimbursed for buying the fitness gear could be forced to share those proceeds with schools that were late joining the program.
The plan was offered by a U.S. bankruptcy trustee in charge of liquidating the National School Fitness Foundation, an American Fork-based charity accused of running a pyramid scheme on sales and token reimbursements for weight machines, treadmills and other equipment.
The foundation arranged to sell $77.5 million in equipment to more than 600 schools in 20 states, including schools in Minnesota and Ohio that were last in line and recouped little or nothing for buying the equipment on a promise of reimbursement.
The schools that got in early on the scheme received $31.6 million in reimbursements — an average 28 percent discount on the prices they paid for the equipment, bankruptcy trustee Kim Moser said in an Oct. 15 court filing.
If a bankruptcy judge approves Moser's settlement, 147 of 350 school districts would be forced to surrender some of the money they received back from the charity so the other 203 districts would gain reimbursement.
"We would have to come up with close to $190,000, and that's something we just couldn't afford right now," said Paul Gottfredson, business administrator for South Sanpete School District in central Utah, the state's only district to receive full reimbursement for its fitness equipment.
"We're totally at the mercy of the court and trustee. We've all agreed to get an attorney and fight this. But I'm not convinced we'll be successful," he said.
Schools took out loans for $150,000 to $230,000 for a roomful of exercise equipment, lesson plans and a computerized system to track student progress.
The charity said it was financing the scheme with federal grants and private contributions, but prosecutors say it was taking kickbacks from an equipment dealer to make token payments to schools that signed up early.
Joseph M. Beardall, 49, president of School Fitness Systems, which provided the equipment, pleaded guilty to defrauding six financial institutions and Minnesota school districts of more than $1 million.
Based partly on his testimony, a Minnesota grand jury on Tuesday indicted the foundation's former president, Cameron Lewis, and his father, Ty Lewis, both of Utah, on multiple counts of money laundering and mail, wire and bank fraud.
Ohio authorities last month sued School Fitness Systems for $4 million paid by 99 schools in that state for fitness equipment.