HACKENSACK, N.J. -- Two former executives at a Pennsylvania athletic equipment company were arrested Wednesday on charges that they oversaw a decade-long scheme that bilked millions of dollars from schools and colleges through the sale and reconditioning of football helmets and other gear.
The charges stemmed from a four-year investigation into Circle System Group Inc. of Easton, Pa., which sold and reconditioned athletic equipment, uniforms and apparel nationally but did much of its business with middle and high schools, colleges and youth programs in New Jersey.
Among more than two dozen schools referenced in a 22-count indictment were Rutgers University and public schools in Newark and Jersey City.
In just one of several schemes outlined by federal prosecutors, the defendants allegedly used monthly statements that looked virtually identical to its billing invoices to collect more than 500 duplicate payments from schools totaling upward of $970,000.
The overpayments were segregated in a secret account for the personal benefit of one of the defendants unless a school district discovered the error and demanded a refund, a grand jury in Newark charged. Most didn't.
Mitchell Kurlander, 52, of Allentown, Pa., the former chief financial officer of Circle System Group Inc.; and his father-in-law, Alan Abeshaus, 79, of Highland Beach, Fla., the company's largest shareholder; surrendered to agents of the FBI and the U.S. Department of Education Office of Inspector General at FBI headquarters in Newark.
They later appeared in wrist and ankle shackles before U.S. Magistrate Judge Michael A. Shipp, who set bail for Kurlander at $500,000 and $250,000 for Abeshaus.
During the hearing, Assistant U.S. Attorney Eric Kanefsky told the judge that both men had "reaped millions of dollars" through a long-running fraud that investigators pieced together from hundreds of thousands of documents seized from the company in 2007.
Outside the courtroom, attorneys for the defendants vigorously protested their innocence and predicted they would be vindicated.
"We think that the case is way overblown," said Kurlander's lawyer, William A. DeStefano of Philadelphia, adding he expects the charges will either be dismissed or the two men will be acquitted at trial.
Abeshaus' attorney, Kevin H. Marino of Chatham, said his client "is innocent and looks forward to being exonerated at trial."
The indictment charged both men of conspiracy to commit mail fraud and wire fraud. Kurlander, a part-owner of Circle from 2003 until it was sold in 2005, also was charged with nine mail-fraud counts and a dozen counts of wire fraud.
Circle's business relied on a sales force that used gifts ranging from golf outings to high-end electronics to build long-term personal relationships with athletic directors and the equipment managers, trainers and coaches responsible for purchasing equipment and reconditioning services on behalf of their schools.
From at least 1997 to 2007, Circle engaged in a range of fraudulent business practices that included retaining duplicate payments that should have been credited back to schools, generating fake price quotes purportedly from competitors, and padding invoices to recoup the costs of gifts and donations made to ingratiate the company with school officials, the indictment said.
Over the years, Circle salesmen submitted hundreds of fake quotes to at least 100 different schools in 12 states, the indictment said.
Using letterhead from at least four rival companies, and sometimes forging the signatures of their owners, Circle would mail, fax or hand-deliver fake price quotes to athletic officials to make it appear it had the lowest bid. In some cases, the school officials knew, or should have known, the quotes were fake, the indictment said.
To boost business, Kurlander authorized employees to make donations to schools for charitable events such as golf outings and football clinics. The company then reimbursed itself by charging schools for goods and services that it never delivered, the indictment said.
The probe became public in December 2008 when Circle's former president, David Drill, pleaded guilty to operating a massive fraud in which the company lied about critical helmet safety tests, lavished gifts on school officials, created fake price quotes and double-billed districts.
Since then, former high school officials in Elizabeth and Long Branch, N.J., have pleaded guilty, admitting they accepted thousands of dollars in gifts, including a laptop computer, flat-screen TV, digital camera and DVD player, from Circle to approve fraudulent invoices or circumvent bidding laws.
A Record inquiry in 2009 found that at least two Bergen County districts -- Lyndhurst and Waldwick -- had received price quotes for new football helmets from a company that does not sell them. The indictment charges that a fraudulent invoice voucher was mailed to Lyndhurst in June 2006.
Frank "Butch" Servideo, the athletic director at Lyndhurst High School, had no comment on the charges against the former Circle executives.
"I will say that I'm glad it's over and Lyndhurst has been found to have done nothing wrong," he said. "When we were investigated, it was found that we did what was right and that Circle did things that were fraudulent. It was found that we were double-billed, at times."
Rutgers issued a statement late Wednesday saying the university would have no comment on the matter.
"We are aware of an ongoing legal investigation involving Circle Systems in which the Rutgers Department of Intercollegiate Athletics was named an 'unknowing victim' in this case," the statement said. "Due to the fact this is an ongoing legal matter, we have no further comment."
"Our investigation will continue to explore the scope of this disturbing deception," U.S. Attorney Paul Fishman said in a statement.
(c) 2011, North Jersey Media Group Inc.
Visit The Record, www.northjersey.com.
Distributed by McClatchy-Tribune Information Services.