Feds go after fitness group that Doyle embraced

A federal judge in Minnesota this week froze the Utah organization's assets and ordered it to stop selling fitness equipment to schools in the state.

"There is probable cause to believe defendants have committed and continue to commit federal mail and wire fraud," said U.S. District Court Judge Richard Kyle in St. Paul, according to the Associated Press.

Doyle in January announced a $10 million private-public partnership with NSFF, but withdrew his support when Minnesota officials said it appeared the organization was running a Ponzi scheme.

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Gov's pic gone, but endorsement stands on web site

May 11 -- Gov. Doyle's grinning gums are gone from the National School Fitness Foundation's web site home page, but word of his endorsement remains.

The site continues to feature pictures and video of Doyle in its media section.

The home page pictures of Doyle were gone by mid-day Monday. Doyle requested last week that all references to his support of the firm be removed from the site, but as of Tuesday, the site still proclaims: "Wisconsin Governor/NSFF enter $10 million partnership."

Doyle, who announced the partnership with the firm during his State of the State address in January, withdrew his endorsement of the firm last week after a Minnesota official said the company's operations could be a ponzi scheme.

NSFF also suspended payments to school districts (see story below).

Doyle-backed fitness program a "ponzi scheme," Minnesota official says
Governor distances himself

May 8 -- A school fitness equipment program publicly endorsed by Gov. Jim Doyle in his State of the State speech appears to be a huge ponzi scheme, a Minnesota state official says.

A Doyle spokesman said Friday the governor no longer supports the program, which was supposed to provide schools with expensive equipment at no cost to them.

The program's vendor, the non-profit National School Fitness Foundation, announced this week that it would delay issuing reimbursement checks to hundreds of school districts that made up-front payments for the the equipment. The schools expected the foundation to pay them back.

Minnesota AG Mike Hatch said the foundation and its operations have "all the signs of ... the largest Ponzi scheme we've seen ever," according to the Minneapolis Star Tribune.

Just four months ago, Doyle wanted to team up with NSFF in a $10 million public-private partnership to put fitness equipment in 100 schools. On Friday, though a Doyle spokesman said the governor is revoking his endorsment and has asked NSFF to remove any mention of his backing from its promotional materials.

As of Saturday morning, however, Doyle still was prominent on the foundation's home page.

Doyle's reversal came the same week a National School Boards Association web site asked if NSFF is the "Enron of Education."

At least one Wisconsin school -- Gerritts Middle School, in Kimberly -- has acquired fitness equipment through the foundation.

Federal tax documents show the non-profit was profitable for President Cameron Lewis, whose salary rose from $155,000 in 2000 to $317,358 in 2001. Foundation Chairman J. Tyron Lewis wasn't paid in 2000, but got $52,500 for working 20 hours a week in 2001.

Hatch said the foundation's unaudited liability was about $77.5 million as of Dec. 31, according to the Star Tribune.

“Usually a Ponzi scheme involves little old ladies," he said."To be able to take that kind of money out of government agencies is stunning," he said.

NSFF sells school districts on a program, known as "LIFT America," by getting the districts to make up-front payments for equipment and services. NSFF assures the districts they will be reimbursed for their costs, according to School Board News.

NSFF says it receives money to reimburse schools from federal grants and contributions from private foundations, but Minnesota officials allege that the company is relying on "royalty payments" from districts it has recently signed contracts with to reimburse districts that have been in the program longer.

The Minnesota Department of Commerce last month issued an "order to show cause" why the NSFF and its authorizing agent, School Fitness Systems (SFS), should not be stopped from doing business in the state.

At issue is whether the firms made "fraudulent or deceitful statements, material misrepresentations, or omissions" concerning the LIFT America program," according to the order. A prehearing has been scheduled for May 20.

The order describes a typical sale: a school pays $222,000 to School Fitness Systems, which covers the cost of equipment, training, and shipping; a $3,000 fee to SFS; and a "royalty payment" of approximately $134,000 -- or 60% of the purchase price -- to NSFF.

The majority of vendors that supply the equipment and services are "directly or indirectly affiliated with, owned, controlled or operated by" current or former NSFF or SFS owners or officials, according to the order.

The tax documents show NSFF paid $342,500 to School Fitness Systems in 2001 for "equipment procurement."

NSFF also paid $156,000 to a firm called Blackwell for "administrative services" and $65,000 to Compass Development for consulting. All the entities -- the National School Fitness Foundation, School Fitness Systems, Blackwell, and Compass Development -- shared the same American Fork, Utah address.