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Charity files for bankruptcy

Group’s Chapter 11 filing puts a strain on schools

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AMERICAN FORK — An American Fork-based charity that provided schools with funding for exercise equipment filed Tuesday for bankruptcy.

While that leaves local schools in the lurch for now, a spokesman for The National School Fitness Foundation said that the foundation is restructuring its organization and plans to resume payments to schools in the near future.

"The reason we have filed for Chapter 11 is simply to give us enough time to get through our issues right now," said foundation spokesman Cris Rees.

"We know that there is a significant strain on schools, but we hope it won't last for long."

The foundation gave indications of its financial troubles last month when it informed school districts in 20 states that it could no longer help finance fitness equipment purchased through the charity.

Originally, however, the fitness foundation told the 600 schools that it would reimburse the costs of purchasing a full set of exercise equipment by raising donations and seeking federal grants, which would be distributed monthly among the participating schools.

Though the charity only received $6 million in government grants, it did raise $38 million from equipment purchases and donations, which was given back to schools.

But that amount doesn't come close to covering the $77.5 million price tag for all the exercise equipment.

As a result, hundreds of Utah schools — like two dozen in the Alpine School District — are left scrambling for ways to pay for the exercise equipment.

"We had hoped to receive those reimbursements, but we have reserves that this will have to come from," said Rob Smith, finance administrator for the Alpine School District.

According to the foundation's Web site, www.nsff.net, the charity was founded in 2000 "in order to combat the alarming trends in childhood obesity."

While schools have praised its exercise program, critics of the NSFF say that the charity is actually a pyramid scheme that used the money from newly enlisted schools to pay back the schools that signed up first.

When the program ran out of new participants, however, it began to flounder.

"We cannot guarantee that people will donate to us," Rees explained.

While contracts didn't guarantee repayment, school officials say they assumed the charity's claim was legitimate.

Testimonials by high profile individuals like U.S. Sens. Bob Bennett and Orrin Hatch, R-Utah, along with former Utah Gov. Michael Leavitt, now the federal EPA chief, and a former U.S. surgeon general also helped build trust in the foundation.

Considering the foundation's financial troubles, Smith said that Alpine School District would not consider working with the charity again.

"In essence, I think their intentions were good," Smith said. "But I don't think they were as forthcoming with the financial information and the technical information as they should have been."

According to an investigation by The Associated Press, the charity's founder, Cameron J. Lewis, has had a string of failed businesses, a history of personal bankruptcy and used the nonprofit foundation to give himself a $317,358 salary.

That prompted an investigation by Minnesota Attorney General Mike Hatch, who declared NSFF a "Ponzi scheme" and got a federal court to issue a restraining order against the charity to keep it from further fund-raising.

That order was stayed on Tuesday — allowing the foundation to resume business as normal. A statement detailing changes within the organization is expected to be released later this week.

"It's still on the horizon to get out of this," Rees said.

Contributing: Associated Press

E-mail: lwarner@desnews.com