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Utah charity files for bankruptcy as probe continues

A charity accused of ripping off schools around the country on fitness equipment filed for bankruptcy protection Tuesday.
/ Source: The Associated Press

A charity accused of ripping off schools around the country on fitness equipment filed for bankruptcy protection Tuesday.

The National School Fitness Foundation made its Chapter 11 bankruptcy filing the same day it appeared before a Minnesota judge over an order to stop doing business in that state.

So far, no criminal charges have been filed against the Utah-based charity, which sold the gear with a promise to reimburse schools with money from private donations and government grants.

Cameron J. Lewis, the foundation's president, has denied any wrongdoing.

On Tuesday, the foundation listed assets and liabilities of up to $10 million each in its initial bankruptcy filing. The petition also said it owed money to up to 995 creditors.

Jason Crandall, the charity's bankruptcy lawyer, did not return a call Tuesday from The Associated Press.

The charity had arranged to sell $77.5 million in stationary bicycles, weight machines, treadmills and other equipment to more than 600 schools across 20 states.

Last month, a federal judge in St. Paul, Minn., froze nearly $7 million in the charity's assets and ordered the foundation to stop doing business in Minnesota at the request of U.S. Attorney Tom Heffelfinger, who is investigating. Tuesday's hearing was to address the court order.

Attorneys for the government and the charity met in Judge Richard Kyle's chambers for 90 minutes and left the courtroom without revealing the content of those talks. They said Kyle was expected to issue an order later Tuesday or on Wednesday.

Court documents trace a web of business ties between foundation officers and equipment suppliers that charged schools "highly inflated prices" for sports gear and kicked back 60 percent of their proceeds to the charity as a "royalty."

Heffelfinger has said that 16 Minnesota schools that bought equipment had little chance of being reimbursed because they followed in line behind hundreds of other schools for reimbursements and only so much money was available to pay the schools.

In Utah, by contrast, 131 schools were among the first to sign up in 2001 for the charity program and officials say none has complained about being shortchanged.

The Minnesota Commerce Department also is trying to shut down the foundation in that state, saying it was effectively selling unlicensed securities to public schools in the form of contracts promising repayments.


On the Net:

National School Fitness Foundation:

Foundation list of participating schools: