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Case No. 1111"CR·03068
DARAIN E. ATKINSON,
In exchange for the following assurances, the State of Missouri agrees to recommend the sentence set forth below: L Defendant's Assurances: The Defendant will plead guilty and admit to acting in concert with Cory Atkinson and others to commit the crimes alleged in each of Counts I, II and III of the Information filed in this case; 2. State's Recommendation: In exchange for the pleas of guilty, the State agrees to make recommendations at sentencing that do not exceed the following:
a, On Count I, eight (8) years in the custody of the Missouri Department
of Corrections, concurrent with any sentence imposed by a United States District Court for related federal charges;
b. On Count II, eight (8) years in custody, concurrent with the sentence imposed for Count I, and concurrent with any sentence imposed by a United States District Court f01:related federal charges; and c. On Count III, foul' (4) years in custody, concurrent with the sentences imposed for Count I and Count II, and concurrent with any sentence imposed by a United States District Court for related federal charges. 3. PactuaI Basis for Pleas In addition to his admissions of guilt on Counts I, II and III, as evidence to support the Court's finding of a factual basis for the pleas of guilty, the Defendant will affirm under oath the following admissions of fact: a. Beginning at a time prior to -Ianuary 3, 2005, Defendant Darain Atkinson and Cory Atkinson, who are brothers, jointly owned and operated a business known as National Auto Warranty Services, Inc. ("the Company"). The Company was primarily in the business of
selling vehicle .repair coverage under motor vehicle extended service contracts (ItVSC:»throughout the United. States. On January 22, 2009, the name of National Auto Vi[arranty Services, Inc, was changed by Darain Atkinson and Cory Atkinson to US Fidelis. The Company offered, negotiated and sold vehicle repair coverage under the direction and control of the Darain Atkinson and. Cory Atkinson through at least May 8,2009.
b. The Company had its principal place of business in St. Charles County, Missouri and all operations relevant to Counts I. II and III occurred in St. Charles County, Missouri. c, At all times relevant, Darain Atkinson and Cory Atkinson also owned a direct mail business, which was known as DS Direct. d. The Company was structured as a privately held. company and each brother owned 50% of the business, At all times relevant, Darain Atkinson was president of the Company and one of its two directors. Cory Atkinson was vice president of the Company and the other director. Darain Atkinson and Cory Atkinson dominated and
controlled the business decisions of the Company, e. At all times relevant, under the direction of Darain Atkinson and Cory Atkinson, the Company also offered, negotiated and sold vehicle repair coverage under contracts associated with Auto Life Xtend, Carmer and other vehicle products C'Product Warranties' or "P\iVs").
f. For many of the VSG's offered and negotiated by the Company, the entitywith the financial obligation to cover claims ("Provider"), and under contract to handle claims, had no affiliation with
administrators the Company.
g. However, on numerous occasions, the Company offered, negotiated and sold vehicle repair coverage to consumers under P\iV s, under which the
provider and obligor was Crescent Manufacturing, LLC,
companies under the control of Darain Atkinson and Cory Atkinson. h. The Company used a. variety of techniques) methods and practices to market and sell vehicle repair coverage under both VSCs and P'iVs including direct mail to consumers) media advertisements, unsolicited telephone calls.
At all times relevant, a VSC was not a warranty warranty.
At all times relevant, a PW, although labeled a product
warranty, was also not a warranty because the additives with the PW were not a central feature of the offer to the consumer, nor was the promised vehicle repair coverage related to performance of the products.
J. The Company had no association with an automobile manufacturer.
no time did the Company have an ability to provide an automobile manufacturer's factory warranty or to alter or extend a factory
k. At all times relevant, a VSC or PW offered by the C0111panyonly covered specified types of vehicle repair costs. VSC and PW administrators administrator, were responsible for handling and paying claims. An if different than the provider under the contract, would from the provider. An obligation to perform
then seek reimbursement
under a VSC was insured by a reinsurance group or a risk retention group. 1. At all times relevant, the cost and availability of a VSC or PVV depended on a number of factors, including the type, age, and. mileage of the vehicle in question, as well as the term of the coverage. The price of the P\tVhad
known relationship to the performance of the product.
The Company made a profit and attempted to make a profit by marking up the price of the VSC or PW. The total price for a purchaser of a VSC or PW was often greater than $2,000. At all times relevant, most VSC and PW purchasers financed the cost of the vehicle repair coverage. Although some purchasers paid in full at the outset, the Company had contracts with Mepco Finance Corporation C'Mepco"), a Michigan corporation with offices in Chicago, Illinois. At times, lVIepeowas known as Mepco Insurance Premium Financing, Inc. A substantial number ofVSCs and P\Vs marketed, offered. and. negotiated by the Company were financed by Mopco.
The Company typically received the largest percentage of the total sales price of a VSC - receiving approximately 60% as profit. This was sometimes referred. to as "dealer profit." On each contract with a price to the purchaser of more than $2,000, the dealer profit for the Company was often more than $1,200. The VSC provider received the next
largest percentage - about 30% ,--- hich was sometimes referred to as w "dealer cost." This amount typically 'would be shared with any third party administrator contracted to handle claims. Mepco received approximately 10%. For any VSC or FW under which Crescent Manufacturing, LLC, or any other provider under the domination and
control of Darain Atkinson and Cory Atkinson) the brothers would also be entitled to the dealer cost. At all times relevant, when a VSC or P\V purchaser financed its purchase, the Company typically received its full dealer profit up front, after the customer made and the first installment payment.
an initial down payment
At all times relevant, VSC purchasers had a right of cancellation, and VSC cancellations presented persistent issues for the Company. VSCs were typically cancelled in one of two ways - voluntarily and involuntarily, A voluntary cancellation occurred when a purchaser notified the Company, the provider or administrator that the purchaser wished to cancel the VSC. An "involuntary cancellation" occurred if a purchaser stopped making payments. At all times relevant, when a
VSC purchaser voluntarily cancelled - after the initial free-look period (usually:30 or 60 days depending
the contract and during which
time the purchaser was entitled to a full refund) - the purchaser was generally entitled to a pro rata refund, representing the "unearned fee".
The Company was required to refund some or all of its dealer profit to Mepco - the "unearned" profit. 'I'he pro rata refund under the typical VSC with both mileage and time limitations would be calculated by deducting an amount for either the length of time since the VSC had. been purchased or the number of miles driven since the date of purchase from the total amount paid by the purchaser. When a VSC purchaser voluntarily cancelled, the amount of refund under the typical ASC would also be adjusted for any claims paid. o. At all times relevant, although the cancellation rate fluctuated, the percentage of VSCs sold by the Company that eventually cancelled was substantial, sometimes in excess of 60%.
p. At all times relevant, Darian Atkinson directed the Company to withhold between 10% and 40% of the pro rata refund owing to many purchasers who voluntarily cancelled their 'lSC, without the consent of the purchasers. Darain Atkinson and Cory Atkinson discussed this
instruction on several occasions between January 3~2005} and May 3, 2009, and Cory Atkinson was aware that the Company was carrying out this direction. Darain Atkinson and Cory Atkinson had knowledge
of and acted together through the Company to withhold
to purchasers who voluntarily cancelled VSCs. 'I'he
amounts being withheld as alleged under Count I exceeded $25,000 in the aggregate. q. The opportunity for a refund by the purchaser of a p\¥ was significantly more limited than under the voluntary cancellation of a VSC. In order to obtain any coverage under a PW, the purchaser was instructed to install the associated prod uet within 30 days of the purchase date. However, the written PVV, which often arrived to the purchaser after the delivery of the product, required any purchaser requesting a refund to return unused product to be eligible for refund. Since most purchasers were immediately directed install the product, the most common method of cancellation of the p\¥ was involuntary cancellation. Therefore, the vast majority of P\V purchasers seeking
refunds were denied. r. The impact of voluntary cancellations ofVSCs on the Company's financial situation, including cash flow>was significant. At all times relevant, Darain Atkinson and Cory Atkinson requested and were regularly provided with financial information which included cash How and cash availability information for the Company. At all times relevant, Darain Atkinson and Cory Atkinson routinely used the Company's cash and funds as a means of funding their personal lifestyles, including paying for the costa of building and buying multi8
million dollar homes in St. Charles County, Missouri, Lake Tahoe, and the Cayman Islands. Darain Atkinson and Cory Atkinson also used Company funds to pay for luxury vehicles, boats) and the expenses of relatives. The Company did not maintain a sufficient reserve account to pay the expenses associated with cancellations. As a.result of Darain Atkinson's and Cory Atkinson's personal spending of C0111panyfunds, and a lack of sufficient reserve funds, the Company relied extensively on new sales of VSCs and PvV s to pay the costs associated with VSC cancellations, s. At all times relevant, in order to generate VSC sales to keep the Company afloat and maintain their personal spending habits, at the direction of and with the know ledge of Darain Atkinson and Cory Atkinson, the Company designed and employed a variety of marketing and sales techniques, methods and practices. t. These techniques, methods and practices included mailing millions of confusing' and misleading mailers which were designed to generate inbound calls to a Company sales center in St. Charles County, Missouri. The Company employed deceptive and misleading techniques, methods and practices in the creation ofmailings and form ulating statements to be made over the telephone between January 3~2005, and May 3, 2009, which 'were:
Designed to create the impression that a prospective purchaser was communicating with an automobile manufacturer or dealership; that more vehicle repairs would be covered than were actually covered under the terms of the written contracts; and
ii, Designed to create the impression with prospective purchasers
Designed to omit, conceal or suppress facts concerning the association of the product and the fact that the product's performance had no relationship to the coverage under the Product Warranties.
u. Darain Atkinson, with the intent to mislead, was acting together with Cory Atkinson, and other managers, to commit these deceptions in aiding and encouraging the Company and its sales managers and employees. 'These individuals developed and used.the deceptive mailings and telephone misrepresentations and omissions. v. The misleading acts, practices and methods in.the mailings and over the telephone related to the false association with an automobile manufacturer or dealership, include:
Deceptive statements and formats that were designed to create the impression that the prospective purchaser was communicating with someone associated with automobile manufacturers or dealerships; and Deceptive omissions; suppression and concealment that the Company had no association with automobile manufacturers Or dealerships.
w. The misleading acts, practices and methods in the mailing's and over the telephone related to vehicle repair coverage exaggerations and omissions, include:
Making statements that the engine, transmission, air conditioner and other parts were covered under the P\V contract, which statement was false, because purchasers' claims for such repair were often denied due to the numerous exclusions and limits that were not stated to purchasers over the telephone, but were contained in the P';Y; Deceptive statements that were designed to create the impression that more vehicle repairs are covered than are actually covered under the terms of the written. contract; and Deceptive omissions, suppression and concealment that the vehicle repair coverage had liability limits, and other conditions and exclusions. .
x. The misleading acts, practices and methods in mailings and over the telephone related to the association of the product with the P\i\Ts,and their lack of relationship to the performance to the coverage, include:
Deceptive statements that were designed to create the impression that one treatment of the product would be effective over the life of the P\V contract; and Deceptive omissions, suppression and concealment that the P\V contracts were, in fact, associated with products, but the performance of the products had no relationship to the coverage.
y. Darain Atkinson was acting together with Cory Atkinson and the
Company to sell vehicle repair coverage under P\V contracts when neither the contract provider, Crescent Manufacturing') LLC,
the Company's representatives
were authorized by the State of
Missouri to transact the business of insurance in Missouri. 4. Continuing Obligations: The Defendant understands and agrees that if the Defendant commits any state or federal criminal offense between the date of this Plea Agreement and his sentencing, or otherwise violates any provision of this Plea Agreement, the State of Missouri may void this Plea Agreement and Defendant shall be subject to prosecution for any state. or federal crime of which the State of Missouri has knowledge including, hut not Iimited to, perjury and any substantive offenses arising from investigation of National Auto \¥ arranty Services, Inc., US Fidelia, Inc., or any individuals or entities associated with these entities. 5. Defendant's Understanding the Pleas: and RepreE\~ntations as to VoIuntarines8 of
a. The Defendant has read this Plea Agreement, understands each and all of its terms, and by his signature, states that it is true and accurate and not the result of any threats or coercion. b. Both parties agree that no promises or agreements have been made other than those set forth in this Plea Agreement, nor has the State of Missouri promised Defendant any additional consideration to induce him to sign this Plea Agreement. The Defendant acknowledges that he
is entering into this Plea Agreement and is pleading guilty freely and vol untarily. c. The Defendan t acknowledges his understanding of the nature of the
offenses to which he is pleading guilty and the elements of the offenses, including the penalties provided by law, as well as his complete satisfaction. with the representation and advice received from his
undersigned counsel and any other counsel who has represented Defendant in this matter. d. The Defendant understands that he has the right to plead. not guilty
to persist in that plea if it has already been made, the right to be tried by a jury with the assistance of counsel, the right to confront and
examine the witnesses against him, the right against compulsory selfincrimination, and the right to compulsory process for the attendance of witnesses to testify in Defendant's defense. Defendant understands that by pleading guilty he waives or gives up those rights and there will be no trial, e. The Defendant further understands that if he pleads guilty the Court may ask him questions about the offense or offenses to which he pleaded guilty} and if Defendant answers those questions under oath and in the presence of counsel, his answers may later be used against him in a prosecution for perjury or false statement. 13
f. The Defendant will waive the presentence investigation.
g. The Defendant understands that the Court may enter a civil judgment for costs and Crime Victim's Compensation Fund. CHRIS KOSTER Attorney General Douglas M. Ommen Darain E. Atkinson ~
Assistant Attorney General ~.}ef:n(/~
Chery I Anne Schuetze Assistant Attorney General
Attorney or Defendant
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