Final U.S. Fidelis Co-Owner Sentenced on Conspiracy and Tax Fraud Charges
|U.S. Attorney’s Office September 25, 2012|
ST. LOUIS, MO—Darain Atkinson was sentenced to eight years of imprisonment and ordered to pay more than $4 million in restitution for conspiracy to commit mail and wire fraud and filing false tax returns.
According to court documents, Darain Atkinson and his brother Cory Atkinson owned and operated National Auto Warranty Services Inc., which was structured as a privately held company with each brother owning 50 percent of the business. In January 2009, National Auto Warranty changed its name to U.S. Fidelis Inc. National Auto Warranty/U.S. Fidelis (NAWS) routinely conducted business using the fictitious name of Dealer Services. The brothers also operated related businesses using some form of the name U.S. Fidelis and owned a direct mail business, which was known as DS Direct.
The primary business of USF/NAWS was marketing and selling vehicle service contracts (VSCs) throughout the United States. Typically, USF/NAWS acted as a broker/seller of VSCs on behalf of other VSC administrators. USF/NAWS made a profit and attempted to make a profit by marking up the price of the VSC, which was often more than $1,000. The total purchaser cost for a VSC was often greater than $2,000. USF/NAWS used a variety of techniques to market and sell VSCs, including direct mail to consumers, media advertisements, and unsolicited telephone calls. A VSC was not a warranty or an extended warranty, and USF/NAWS had no affiliation with an automobile manufacturer, no authority to provide an automobile manufacturer’s factory warranty, and no authority or ability to alter or extend a factory warranty, according to the indictment.
According to the plea agreement, as part of the conspiracy, USF/NAWS employed a variety of false, deceptive, and materially misleading sales and marketing techniques. These techniques resulted in substantial sales of VSCs by USF/NAWS. Among these techniques were mailers that were intended to mislead consumers into believing that the consumers were in some way extending a manufacturer’s warranty and that failed to disclose material limitations on the VSCs being sold.
Darain Atkinson directed USF/NAWS personnel to fraudulently withhold substantial portions of refunds due to customers who cancelled their VSC and were owed a full or pro-rated refund. USF/NAWS routinely fraudulently withheld approximately 40 percent of the total refund due to customers who legitimately cancelled and attempted to cancel their VSC. Often, only customers who complained or threatened action were provided the full refund to which they were entitled. USF/NAWS personnel routinely made the cancellation and refund process difficult to discourage purchasers from being able to obtain refunds to which they were entitled.
In addition to the conspiracy charge, with his earlier plea, Darain Atkinson also admitted that he filed a false tax return for the tax year 2006 that failed to include millions of dollars in distributions that he received from USF/NAWS. According to the plea agreement, between 2006 and 2008, Darain and Cory Atkinson received millions in distributions from USF/NAWS, a substantial percentage of which funds were used to pay for their personal expenses. For example, records from USF/NAWS indicate that in 2006, Darain Atkinson received distributions in excess of $13 million. In 2007, they each received distributions in excess of $8 million; in 2008, in excess of $13 million.
“We should not forget that the ultimate victims in tax fraud cases are the people of the United States—those honest taxpayers who pay their taxes,”said Tanya T. Brewer, Acting Special Agent in Charge of IRS Criminal Investigation.
Darain Atkinson, St. Louis, Missouri, pled guilty April 9 to one felony count of conspiracy to commit mail and wire fraud and one felony count of filing false tax returns. He appeared today for sentencing before United States District Judge John A. Ross.
His brother Corey was sentenced last week to 40 months in prison and ordered to pay over $4 million restitution to the IRS.
This case was investigated by Internal Revenue Service Criminal Investigation, United States Postal Inspection Service, Federal Bureau of Investigation, and the Missouri Attorney General’s Office. Assistant United States Attorneys John Bodenhausen and Charles Birmingham are handling the case for the U.S. Attorney’s Office.