Payton Guion, and Katie Park

Asbury Park Press

Charges: Theft by unlawful taking; misconduct by a corporate official; and money laundering -- all second-degree charges.

About SCHI: Founded in 1995 as a nonprofit; cares for more than 600 special-needs pupils; received $22.9 million from Lakewood this year,

LAKEWOOD - The founder of a special-needs school, which takes in tens of millions of tax dollars a year from the struggling public schools here, was indicted Wednesday on charges he stole more than $630,000 in public funds and then used the school's fundraising foundation to launder much of the money, the state attorney general said.

Rabbi Osher Eisemann, 60, of Lakewood, who is the founder and director of the School for Children with Hidden Intelligence, better known as SCHI (pronounced "shy"), was charged by a state grand jury with: Theft by unlawful taking; misapplication of government property; misconduct by a corporate official; and money laundering — all second-degree offenses that carry up to 10 years in prison and a fine of up to $150,000, state Attorney General Christopher Porrino said in a statement.

The school's fundraising foundation, the non-profit Services for Hidden Intelligence, LLC, was also named in the indictment under the same charges. The school itself was not charged in the indictment.

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During the course of the investigation, Porrino said authorities from the Division of Criminal Justice discovered the school provided money to the fundraising foundation, instead of the other way around, and that Eisemann allegedly used the foundation's bank accounts to fund ventures that had no connections to the school.

SCHI receives around $1.8 million each month from the Lakewood School District and surrounding public school districts that send students to be educated at SCHI, Porrino said.

The school provides educational services for the "medically fragile, and socially-emotionally challenged children," according to its website.

Lakewood is one of the most unusual public school districts in the country. This fast-growing, low-income township of nearly 100,000 residents is dominated by Orthodox Jewish families who send an estimated 30,000 children to private religious schools. Under the law, the public schools pay to bus the children to the private schools, which costs more than $20 million a year. The public schools, meanwhile, have about 5,000 students and are facing a fiscal crisis this year with a $14.7 million shortfall. Administrators said they may have to lay off 119 teachers to balance the budget.

Among the costs affecting the budget is the growing tuition for students sent to SCHI.

Although the tuition money for SCHI is expected to "be used strictly for operating expenses of school," Porrino said Eisemann allegedly used the fundraising foundation to take out around $430,000 to invest in a business associate's now-defunct clothing line, called TAZ Apparel, LLC, which was based in Highland Park. No one associated with TAZ could be reached for comment.

Neither the school nor the fundraising foundation had any interest in TAZ Apparel, Porrino said, and Eisemann allegedly invested in the clothing line as a "personal investment." Authorities from the Division of Criminal Justice reportedly found contracts between Eisemann and the owner of TAZ Apparel, in which Eisemann agreed to finance a maximum of $550,000 in the business while the owner — who Porrino did not name — would manage the day-to-day operations. The grand jury said the scheme ran between 2011 and 2015.

Eisemann is charged with transferring money from the school's operating account into the accounts of the fundraising foundation, then sent around $277,000 to TAZ using checks and wire transfers, Porrino said. Eisemann also is accused of paying TAZ Apparel's credit card bills — $153,000 in American Express fees, according to the charges.

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Eisemann allegedly funneled an additional $200,000 from the school operating's account through the fundraising accounts, which Porrino said was illegally laundered to make it look as if Eisemann was repaying debts to the school using his own money.

The $200,000 allegedly traveled through the school, then was transferred between "several unrelated entities," individual people — including TAZ Apparel — and back into Eisemann's personal bank account. The scheme, which Porrino said was allegedly meant to cover the origins of the money, was done in six days in March 2015.

Several calls to the school on Wednesday went unanswered.

Jeff Ifrah, the school's lawyer, said that Eisemann is "not denying a loan was made." He said that Eisemann, though, used his own money for the loans. "His full intent was that the loan would be repaid."

Humble beginning

Eisemann started the school in a storefront in the mid-1990s, in part because he has a child with special needs, Ifrah said. SCHI began with just five students, but grew rapidly, both in size and reputation. In 2007, SCHI moved into a 64,000-square-foot building on a 13-acre plot on Oak Street and opened its doors to around 250 students and 450 employees. The school now says that it cares for more than 600 students between the ages of 3 and 21.

Michael Inzelbuch, former attorney of the Lakewood Board of Education who now represents children with disabilities, said Eisemann lived "a rather simple life" and called the allegations against him "unbelievable." Eisemann's attorney also denied the charges against his client.

"Rabbi Eisemann has never taken any SCHI funds for his personal use, and we strongly deny that there was any ill intent in the use of SCHI funds," lawyer Lee Vartan said in a statement. "We look forward to the complete exoneration of both SCHI and Rabbi Eisemann in this investigation."

SCHI has been the subject of an ongoing Asbury Park Press investigation for more than a decade. A 2012 series exposed how the Lakewood public schools actively kept minority children in need of special education services from being enrolled in the school. They were, instead, tutored within the public school walls. But the Press found that most of the children enrolled by the school district were almost exclusively from Orthodox religious families.

Sheldon Boxer, a former principal of Oak Street Elementary School in Lakewood, told the Press in 2012 that he lied to parents of disabled children so the district wouldn't have to pay for them to attend a more expensive school geared toward kids with special needs, like SCHI.

Although more than $22 million a year in tax dollars is spent at SCHI, the school has repeatedly denied Press reporters even a cursory look within its walls. It has, however, hosted tours for powerful politicians, like U.S. Sen. Cory Booker, D-N.J., and governors Chris Christie and Jon Corzine.

The school again denied the Press entry to school grounds on Wednesday, with guards at both entrances allowing only authorized people to enter.

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Racial criticism

Over the years, the institution has drawn its share of criticism. Township residents have pointed to its costly tuition, set at more than $97,000 a year by the state Department of Education, and its majority white, Orthodox student body, despite the large population of black and Hispanic students in the district's public schools.

David Shafter, a state-appointed monitor who oversees Lakewood's school district, said the district paid more than $22 million to SCHI this school year, up from $18 million in the 2014-2015 school year. Tuition at SCHI is much higher than other schools in the area that cater to special-needs students.

Lakewood School District pays $60,485 per year in tuition at the Bancroft School in Voorhees Township, Shafter said, about 41 percent less than tuition at SCHI.

"The tuition at SCHI is the highest Lakewood pay per student for any out-of-district school," Shafter said but added that the quality of the school was not in question.

SCHI's most recent financial reports show the school earned $19.2 million in revenue in 2015, most of that coming from public funds. The school had $18.9 million in expenses, leaving $331,746 in surplus. The records show Eisemann was paid a salary of $119,273 in 2014.

On Wednesday, Elie Honig, director of the Division of Criminal Justice, said the attorney general's office was continuing to seek leads about the case.

“We’re actively continuing our investigation of Rabbi Eisemann and his alleged use of the school’s fundraising foundation in schemes to siphon money away from the school for his personal use,” Honig said.

While the second-degree charges carry a 5- to 10-year state prison term and a maximum fine of $150,000, the second-degree money laundering charges carries a $500,000 fine, and an anti-money laundering profiteering penalty of up to $250,000. No trial date has been set.

Ifrah, the lawyer representing SCHI, said even though the school maintains Eisemann's innocence, officials are worried this case could hurt the institution.

"We're talking about hundreds of handicapped kids," Ifrah said. "The school is very concerned it won't be able to continue its mission."

Reporter Mike Davis contributed to this story.

Katie Park: kpark@gannettnj.com; 732-643-4358

Payton Guion: pguion@app.com; 732-643-4245

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