Business/US Fidelis plea
4:30 pm
Thu April 5, 2012

Former owner of US Fidelis pleads guilty to state charges

Updated at 4:08 with comments from Attorney General Koster and Darain Atkinson's attorney.

Updated 3:58 with statement from the Better Business Bureau:

“US Fidelis left a trail of dissatisfied consumers from across the United States.  Today’s guilty plea by Darain Atkinson in St. Charles County illustrates the risks of unethical business behavior and the importance of the work of groups like the Better Business Bureau in exposing the underhanded practices in our marketplace,” Michelle Corey, BBB president and CEO said.

Updated 2:38 p.m. with more details on charges.

One of two brothers who owned US Fidelis, the bankrupt auto services contract company, has pleaded guilty to three state counts.

47-year-old Darain Atkinson admitted in St. Charles County Circuit Court today that through his former company, he intentionally cheated thousands of consumers who had purchased extended warranties through US Fidelis.

"It's always been his position that his vision didn't start out this way, but he certainly acknowledges how it ended up," Atkinson's attorney, Scott Rosenblum, said after Thursday's hearing. "As his posture has been the entire time, he's done everything not only to accept his responsibility - he's essentially surrendered every asset that he has in an effort to make this good and make this right. He's cooperated with the bankruptcy court, and he hopes to put this unfortunate incident behind him and move on with his family."

Here's a short look at the charges to which Atkinson pleaded guilty:

  • Stealing, Class B Felony - US Fidelis kept as much as 40 percent of refunds due to customers who canceled their service contracts with the company.
  • Insurance Fraud, an unclassified felony - US Fidelis indicated in mailings and phone calls that the customer was speaking with someone associated with automakers or dealerships. The company also misled customers about the amount of coverage provided by the warranties, and also illegally sold warranties that provided coverage only if the driver used a specific product, which was supposed to improve the performance of the car.
  • Unlawful merchandising practices, Class D Felony - US Fidelis spread these false statements via robo-calls and mailings.

US Fidelis was the country's largest marketer of auto service contracts, which were billed as extended warranties that could help car owners cover repair costs after manufacturer warranties expired. In many cases, however, the contracts covered only limited repairs.

"When we came into office, we believed that the industry was essentially corrupt in far too many places," said Attorney General Chris Koster, who handled the prosecution. "We put a great deal of both civil and criminal pressure on these various companies, and today's eight-year prison term sends a message to everyone who is in this insurance space that the rules are going to be enforced and that we take them very seriously." It was the first prosecution under the state's insurance fraud law, which was approved in August 2005.

Atkinson could have faced a maximum of 29 years in prison. Under the agreement, he'll serve no more than eight years, and will not have to pay any fines. Still, Koster said that much prison time for a white collar crime shows that "wrongful players are going to be penalized here in the state of Missouri just like street criminals."

Darain Atkinson also will not have to testify at the September trial of his younger brother Cory, the company's former vice president. Though Darain implicated Cory several times in court on Thursday by responding "we did" to several charges, those statements will carry no weight at Cory's trial. Cory's attorney, Bill Margulis, said his client denies all the allegations Darain made in his plea.

Also on Thursday, the federal government unsealed its indictment against the two brothers, charging them with using company funds for personal expenses. Darain Atkinson's  attorney, Scott Rosenblum, says negotiations are ongoing at that level, and it's likely that his client's sentence for both federal and state charges will be served at the same time in a federal prison.

U.S. Fidelis filed for bankruptcy in 2010. Koster's office says the judge in that case has secured about $27 million to settle claims but has not publicly released how that money will be distributed.