US Fidelis co-owner gets 40 months in prison

AP News
Posted: Sep 18, 2012 1:27 PM
US Fidelis co-owner gets 40 months in prison

ST. LOUIS (AP) — One of two brothers who formerly owned the auto service contract seller US Fidelis was sentenced Tuesday to more than three years in federal prison for fraud and tax evasion.

Cory Atkinson, 42, of Lake St. Louis, Mo., pleaded guilty to the federal charges in June. He also faces sentencing Sept. 28 on state charges of insurance fraud, consumer fraud and stealing and is expected to get a four-year sentence, his attorney, William Margulis, said.

Cory Atkinson's brother, Darain Atkinson, pleaded guilty to similar state and federal charges and is awaiting sentencing.

Besides the 40-month sentence, U.S. District Judge Catherine Perry ordered Cory Atkinson to pay $4.5 million in back taxes. Assistant U.S. Attorney John Bodenhausen said Atkinson already has repaid $15 million to the U.S. Bankruptcy Court, money that will go to victims of the fraud.

Authorities say the now-defunct US Fidelis, based in Wentzville, Mo., misled consumers about what was covered by warranties, lied about affiliation with automakers and dealers and used other deceptive practices. Among other things, prosecutors have said the company fraudulently withheld substantial portions of refunds due to customers who canceled vehicle service contracts and were owed full or prorated refunds.

Perry called the fraud "extensive."

"They did it all intentionally and for no other reason that I can see other than greed," the judge said of the brothers.

She noted that friends and family wrote letters praising Cory Atkinson's morals and generosity.

"But of course that generosity came from other people's money," Perry said.

Atkinson declined comment during the brief hearing. But afterward he called the ordeal sad "for everyone involved."

Asked by a reporter from KMOX Radio what lesson he learned, Atkinson said, "Be careful how fast you grow as a company and be careful of what state you're in, and be careful of their agenda."

US Fidelis, previously known as National Auto Warranty Services and operating under the name "Dealer Services," was among the nation's largest marketers of auto warranties in the mid-2000s. It sold more than 400,000 service contracts.

But complaints about the firm began to mount, so much so that by 2009 11 states barred US Fidelis from telemarketing or selling. The company filed for bankruptcy in March 2010.

Federal prosecutors accused the brothers of using company funds for personal expenses such as luxury vehicles and million-dollar homes in suburban St. Louis, Lake Tahoe and the Cayman Islands. Authorities say the brothers received more than $71 million from the business and its predecessor from 2006 to 2008.

Bodenhausen said prosecutors are seeking a sentence about twice as long — perhaps up to eight years — for Darain Atkinson. Margulis said Darain Atkinson was more involved in the day-to-day operations of the company and prosecutors considered him more responsible for the crimes. His federal sentencing is Sept. 25, and state sentencing is Oct. 1.