U.S. Fidelis Founders Facing Hard Time

ST. CHARLES, Mo. (CN) – Two brothers at the center of the multimillion-dollar flameout of the U.S. Fidelis automobile warranty business have been indicted on charges of consumer fraud, stealing and illegally selling insurance.

     Darain Atkinson, 46, and Cory Atkinson, 41, founders of U.S. Fidelis, said nothing during a hearing before St. Charles County Judge Lucy Rauch on Wednesday. They were each released from jail on $250,000 bond.
     The 14-count indictment claims the Atkinsons kept refunds they owed customers who canceled coverage; charged more than authorized by sales contracts; lied during sales pitches about limits on coverage and caps on claims; falsely suggested that U.S. Fidelis was affiliated with automakers and dealers; and sold insurance without a license by peddling so-called product warranties, a form of vehicle coverage that is conditional on the purchase and use of certain auto additives.
     Missouri Attorney General Chris Koster’s office is handling the prosecution, which is unusual because local prosecutors usually handle violations of state law. But state law allows the attorney general’s office to enforce the state’s primary consumer protection law, the Missouri Merchandising Practices Act, through civil suits or criminal prosecution.
     Two years ago, the Atkinsons lived an exorbitant lifestyle on the backs of U.S. Fidelis customers, prosecutors say. They had mansions, fleets of exotic cars and more than 1,100 employees.
     U.S. Fidelis, which was started by the Atkinsons, led the nation in the sale of auto service contracts until it collapsed in 2009.
     A lawsuit against the Atkinsons was filed in 2010 accusing them of taking $101 million from U.S. Fidelis at the expense of creditors and hundreds of thousands of customers.
     As part of the settlement, the brothers surrendered most of their fortune. Their mansions, exotic cars and yacht have been auctioned or put up for sale to go to the company’s bankruptcy estate. Under the settlement, their wives each got to keep $500,000 plus $75,000 in jewelry, but could not turn those assets over to their husbands.
     At least six states have sued U.S. Fidelis in recent years, and as many class actions have been filed against it by individuals.
     The stakes are high for both brothers. Due to a 1986 conviction for theft, burglary and forgery and a 1987 conviction for manufacturing counterfeit Federal Reserve notes, Darain Atkinson could be considered a persistent felony offender and could face life in prison if convicted.
     Cory Atkinson, who has a 1987 felony conviction for trespassing, faces up to 15 years in prison if convicted.

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