UPDATED throughout at 7 p.m.
ST. CHARLES • The former president of US Fidelis, once one of the nation’s largest sellers of auto service contracts, admitted in court here Thursday that he bilked consumers and looted his own company of millions of dollars.
Darain Atkinson pleaded guilty to state charges of insurance fraud, stealing and unlawful merchandising practices. It was part of a deal negotiated without the knowledge of his co-defendant and brother, Cory Atkinson, the latter’s lawyers said.
After that agreement in St. Charles County Circuit Court was announced, federal prosecutors in St. Louis unsealed an indictment accusing both men of defrauding consumers, failing to pay taxes and using more than $71 million from the company to fund a lavish lifestyle of luxury boats, cars and mansions here and overseas.
Prosecutors recommended a sentence of eight years for Darain Atkinson on the state charges. Sentencing was set for July 16, but won’t happen until after the federal case is resolved, his attorney, Scott Rosenblum, said in court.
Later, Rosenblum said the prison term and any penalty in the federal case likely would run concurrently, resulting in no more than eight years total.
It marked one more step in a dramatic fall for the Atkinsons. Just three years ago, the brothers were self-made millionaires with palatial homes, fleets of exotic cars and more than 1,100 employees working at the Wentzville headquarters of the auto service contract company they founded.
Bill Margulis, one of the lawyers representing Cory Atkinson, the former company vice president, reacted to the plea agreement by saying, “Whatever allegations in there pertain to Cory, Cory denies.” Margulis declined to comment on the tax charges, saying another lawyer was handling those.
Asked about Darain Atkinson’s motivation to plead guilty, Margulis responded, “I can only speculate that he made a decision … that eight years was a lot better than whatever the alternative might be.”
Lawyers on both sides said that Darain Atkinson did not agree to testify against his brother or provide information against him.
Cory Atkinson’s state case is pending, with a trial set for September.
Darain Atkinson has prior convictions — in 1986 for theft, burglary and forgery, and in 1987 for making counterfeit federal reserve notes. Cory Atkinson has a 1987 felony conviction for trespassing.
As part of Thursday’s plea, 11 state charges against Darain Atkinson were dropped.
“He’s done everything he can not only to accept his responsibility, he’s surrendered everything he’s owned to make things good,” said Rosenblum.
Appearing in court in a black suit, blue shirt and striped tie, Darain Atkinson provided polite and brief answers Thursday to questions from Circuit Judge Jon Cunningham and attorneys. He remained free on bail and walked away from the courthouse without speaking to reporters.
The federal indictment makes many of the same allegations outlined in Darain Atkinson’s plea, using similar language.
It also accuses both brothers of failing to declare or pay taxes on more than $40 million received from the company for the tax years 2006 and 2007. On his 2007 tax return, Darain Atkinson reported $73,378 in taxable income when he’d received $8.1 million from Fidelis, the indictment says. That return was the only one for those years on which either brother reported a positive taxable income, it says.
The federal charges also say the brothers’ lavish spending drained an escrow account that was supposed to pay taxes.
Fidelis was a broker for service contracts that promised financial protection for drivers after their vehicles’ original warranties expired. It also sold product warranties, coverage conditioned upon the purchase and use of certain auto additives.
In his plea, Darain Atkins admitted that the profit was often more than $1,200 on a contract typically priced at more than $2,000.
The company used deceptive and misleading direct mail and telemarketing campaigns designed to fool consumers into thinking they were talking to dealers or auto manufacturers, and portrayed service contracts as more comprehensive than they actually were, the plea says.
Unhappy customers canceled, sometimes at a rate as high as 60 percent.
When they did, Darain Atkinson told Fidelis staffers to arbitrarily withhold 10 to 40 percent of their money — and Cory Atkinson knew the full amounts of refunds were not being returned, the plea says.
The Atkinsons funneled millions of dollars into multi-million dollar homes in St. Charles County and elsewhere in Missouri as well as Lake Tahoe and the Cayman Islands.
Although it is not mentioned in the plea, the company paid almost $27 million to buy land and build Darain Atkinson’s Lake Saint Louis home, which featured a observation tower, bowling alley, beauty salon, a two-story walk-in closet, safe rooms, and secret doors and passageways.
Cory Atkinson’s Wentzville manse was valued at $10 million.
The founders’ spending and the customer cancellations put a strain on the company’s cash flow, and Fidelis was forced to rely on cash from new sales, the plea says. The company collapsed in 2009.
Last month, in a proposed settlement filed in bankruptcy court in St. Louis, the company agreed to pay $1.45 million to 556 former employees.
Missouri Attorney General Chris Koster, who represented the state in Thursday’s case, said after the hearing that since the Atkinson indictment in June, his office has received fewer complaints about other vehicle service contract providers.
“I think the indictment of US Fidelis sent a shock wave through this industry,” he said.
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