U.S. Fidelis Owners to Serve Prison Time, Pay Back Tax Bills

ST. LOUIS - According to a story in the St. Louis Post-Dispatch, Cory Atkinson, a former co-owner of what was once one of the nation's largest seller of auto service contracts, was sentenced in federal court to 40 months in prison on charges of tax fraud conspiracy and tax fraud charges for bilking both consumers and the IRS.

Atkinson, 42, of Chesterfield, will also have to pay $4.49 million in back taxes.

He will be sentenced on state fraud and stealing charges in St. Charles County Circuit Court on Sept. 28 to four years in prison, his lawyer said after Tuesday's hearing, although the state and federal sentences will likely run at the same time.

Assistant U.S. Attorney John Bodenhausen said that the sentence was appropriate, as Atkinson had already turned over $15 million - “substantially all of his personal assets” - that he earned in profits from the company, US Fidelis. He was also less culpable than his brother, Darain Atkinson, Bodenhausen said.

The pair ran National Auto Warranty Services, which peddled extended vehicle service contracts nationwide, and later became US Fidelis. The company collapsed in late 2009 amid allegations of widespread fraud.

US Fidelis used deceptive and misleading direct mail and telemarketing campaigns to fool customers into thinking they were talking to auto dealers or manufacturers and receiving a more comprehensive warranty than they actually were, according to court documents.

The company's profit on a typically contract worth $2,000 or more was often more than $1,200. Fidelis kept 60 percent of that.

Unhappy customers canceled, sometimes at a rate as high as 60 percent, but US Fidelis staffers were told to arbitrarily withhold 10 to 40 percent of their money, according to plea documents. The Atkinsons also sometimes made payments on behalf of customers, so that the company would receive full payment from the finance company before the account went into default, plea documents say.

The brothers were accused of taking more than $100 million from the company and spending it on lavish homes, cars and luxury items. Cory Atkinson admitted omitting $15 million in income from his 2006 and 2007 tax returns. At Tuesday's hearing, he declined to say anything to U.S. District Judge Catherine Perry before he was sentenced.

He faced 36 to 40 months in prison under his plea agreement with prosecutors. His lawyer, William Margulis, asked for 38 months. Bodenhausen asked for 40, saying that a sentence of roughly half of what Darain was expected to get was fair.

Perry said that 40 months was an appropriate sentence for a serious crime, and that the sentence should teach Cory Atkinson a lesson and serve as a message to other white collar criminals.

Outside the courtroom Margulis said that Darain Atkinson “basically ran the company” and was therefore more culpable in the case. Regarding Cory Atkinson's tax bill, Margulis said, “he's basically going to owe that money for the rest of his life.”

Darain Atkinson, 47, of St. Louis, pleaded guilty to similar federal and state charges in April. He will be sentenced on the federal charges Sept. 25 and the state charges Oct. 1, and will likely receive eight years in prison.