The former chief financial officer and chief executive officer of a leading supplier of athletic equipment and reconditioning services have been charged with allegedly directing a long-running fraud against schools in New Jersey and elsewhere, U.S. Attorney Paul J. Fishman announced on May 11.
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 on May 11 to agents of the FBI and the U.S. Department of Education Office of Inspector General. They were expected to make an initial appearance in Newark federal court later that day.
According to the indictment that was unsealed on May 11: 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 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 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, according to the charges.
Among the schools that Circle did business with were Rutgers University, Monmouth University, Freehold High School in Freehold Borough, Long Branch High School and New Egypt High School in Plumsted.
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, according to the allegations.
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 in Easton, Pa.
At the direction of Kurlander and Abeshaus, Circle improperly retained at least $822,000 in duplicate payments from various schools with which it did business, according to the government.
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, according to the charges.
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.
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, according to the government.
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 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, according to the government.
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 Dec. 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 Nov. 22, 2010, and Jan. 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.