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United States of America, Mitchell Kurlander and Alan v. Defendants.

June 14, 2012


The opinion of the court was delivered by: Walls, Senior District Judge


On May 10, 2011, Defendants Mitchell Kurlander and Alan Abeshaus were indicted by a federal grand jury in a twenty-two count indictment. Count One charged both Defendant Abeshaus and Defendant Kurlander with conspiring to commit mail and wire fraud contrary to 18 U.S.C. §§ 1341 and 1343, in violation of 18 U.S.C. § 1349. Counts Two through 22 charged Defendant Kurlander with substantive acts of mail and wire fraud. Before this Court are two motions: 1) Defendants' Motion to Suppress Electronically Stored and Paper Documents and Records Seized on or about May 7, 2007 ("Motion to Suppress") and 2) Defendant Abeshaus's Motion to Dismiss the Indictment as Barred by the Statute of Limitations ("Motion to Dismiss"), joined by Defendant Kurlander. The Court heard oral argument on May 9, 2012. Defendants' Motion to Suppress and Motion to Dismiss are denied.


Defendant Kurlander was the Chief Financial Officer ("CFO") and, for a time, part owner of Circle System Group Inc. ("Circle"), a privately owned Pennsylvania corporation engaged in the business of selling and reconditioning athletic equipment, uniforms, and apparel, primarily football equipment. Indictment ¶¶ 1-2. As CFO, Kurlander was responsible for overseeing and managing the company's accounts payables, accounts receivables, billing, and submission of bids and quotes to customers. Id. ¶ 1. Defendant Abeshaus was the de facto Chief Executive Officer ("CEO") of Circle and its largest single shareholder. Id. ¶ 2. He was responsible for setting the policies and framework for the company's operations and knew of company developments. Id. Circle marketed its services nationally, but most of its sales were made to schools, colleges, and youth sports programs in New Jersey. Id. ¶¶ 2-3. Circle was acquired by Schutt Holdings in September 2005. Id. ¶ 3.

Count One charges the Defendants with conspiracy to commit mail and wire fraud during the time period from in or about August 1997 to in or about June 2007. Id. ¶ 4. Specifically, this count alleges that Defendants conspired to obtain money and other things of value from the schools through several fraudulent business practices including:

A) retaining, and converting to Circle's own use, duplicate payments by the Schools that should have been returned or credited to the Schools;

B) submitting fake quotes to the School Athletic Officials so that their purchases from Circle would seemingly comply with applicable laws, regulations, and policies; and C) submitting fraudulent invoices to the Schools in order to: i) recoup money that Circle had expended for donations to the Schools and the School Athletic Officials; ii) pay for personal gifts given to the School Athletic Officials; iii) ensure that Circle achieved its desired profits on goods and services that had been intentionally "underpriced;" and iv) hide the nature and timing of purchases by School Athletic Officials when requested to do so by the School Athletic Officials.

Id. ¶ 5. Counts Two through 22 charge only Kurlander with the substantive acts of mail and wire fraud in furtherance of the conspiracy charged in Count One. Id. ¶ 33.

On or about October 20, 2006, two employees of Circle (identified as "CI-1" and "CI-2" and collectively, "CIs") filed a qui tam action under seal against Circle pursuant to the Civil False Claims Act ("FCA Complaint"). Opp'n to Mot. 1. The two Circle employees provided a disclosure statement to the Government with material evidence and information related to the FCA Complaint. Id. The United States Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation ("FBI"), and the Office of the Inspector General -- United States Department of Education then began a covert grand jury investigation in the District of New Jersey. Id. at 1-2. Sometime about April 2007, the FBI interviewed CI-1 about the allegations in the FCA Complaint and Disclosure Statement, wherein CI-1 provided details about fraudulent schemes at Circle and identified approximately 30 individuals who could confirm various aspects of these schemes. Id. at 2. The FBI then began covertly gathering information to substantiate CI-1's allegations, including consensually recording conversations between Circle employees and CI-1, searching the abandoned trash can at Kurlander's residence, and conducting surveillance of Kurlander. Id.

On May 8, 2007, the FBI executed five search and seizure warrants at Kurlander's residence in Allentown, Pennsylvania and four buildings owned by Abeshaus in Easton, Pennsylvania. Mot. to Suppress 5. The warrants authorized the seizure of every business and banking record pertaining to Circle's business with the schools between January 1, 2001 and the date of the search, as well as the seizure of any electronic device at each of the five locations. Id. at 6. These warrants were issued by United States Magistrate Judge Henry Perkin based upon the Probable Cause Affidavit of FBI Special Agent Joel Mack. Id. The Affidavit contained information provided by the CIs, as well as information from parts of consensually recorded conversations between CI-1 and a then current and a then former Circle employee. Cert. of Gina M. Ameci ¶¶ 7-8.

At the same time the search warrants were executed, Circle was served with a grand jury subpoena, seeking the same information that was seized under the search warrants. Opp'n to Mot. 3. The Government continued its investigation and presented the information to a grand jury, which indicted Defendants on May 10, 2011. Id. Several of the Defendants' co-conspirators, including Circle's former President David Drill, have pled guilty to participating in the mail and wire fraud conspiracy. Id.


Defendants argue that the Affidavit of Agent Mack submitted to the Magistrate Judge did not provide, and should have provided, information as to the confidential informants' credibility or reliability. Ameci Cert. ¶ 7; Mot. to Suppress 3. The information that Defendants argue should have been included is:

1) In 2005, the CIs filed gender discrimination and related retaliation charges against Circle with the Pennsylvania Human Relations Commission and United States Equal Employment Opportunity Commission, followed by a lawsuit in the Pennsylvania Court of Common Pleas. Ameci Cert. ¶ 9. The CIs sought $300,000 from Circle. Id. ¶¶ 9-10. This suit was ongoing when the CIs provided the information in the Affidavit. Id.

2) Before the Affidavit was submitted, CI-1 allegedly denied and recanted his allegations of fraudulent practices at issue in this case against Circle during a meeting of Circle shareholders and officers, and his allegations were found to be unsupported by independent counsel retained by Circle. Id.

3) CI-1 is a convicted felon. Id. ¶ 10. In 1987, while employed as a prison guard in North Carolina, CI-1 suffocated a federal inmate, which resulted in his death. Id. CI-1 pled guilty to assault and served a nine-year prison term. Id.

4) CI-1 was employed with the Massachusetts Prison System after his release from prison. Id. After the state of Massachusetts learned of CI-1's prior conviction, he was terminated, but CI-1 obtained a $40,000 settlement after claiming his termination was discriminatory. Id.

5) While employed at Circle, CI-1 impregnated a fellow employee. This woman was later arrested and charged with controlled substance offenses, and CI-1 facilitated her escape from custody. Id. Neither CI-1 nor the woman was charged. Id.

Defendants also argue that the Affidavit only included portions of CI-1's conversations with the then current and then former Circle employees which ...

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