US Fidelis: Example of Corruption

Possibly the most scandalous story to emerge from the extended car warranty industry is the tale of the morally (and now, financially) bankrupt company: US Fidelis.

US Fidelis gave the extended warranty industry more than just a black-eye; it beat the crap out of it. It was at one point the number one seller of extended auto-service contracts... and the number one recipient of BBB complaints. It is important to note that this is ONE company—not the entire industry. However, they were the largest in the business, and, the most despicable. To ignore US Fidelis is like sweeping crumbs under a rug: you still get bugs.

US Fidelis was run by two brothers: Darain and Cory Atkinson. They each own 50 percent of the company and acted as the president and vice-president, respectively.

For years customers complained the warranties were worthless and that their sales people were hard to reach and practiced techniques bordering on harassment. (It turns out that US Fidelis's telemarketing techniques weren't just pushy, they were also illegal.) Another constant complaint was the difficulty receiving a refund. And, in fact, it was common practice for US Fidelis to shortchange customers who sought pro-rated refunds—even though Missouri and many other states make full refunds a legal requirement. In a recent affidavit, Philip Jehle, former chief financial officer and vice president of operations, claims that starting in 2004, "it was the policy of the company not to issue refunds unless the consumer threatened litigation, threatened to complain to a governmental agency or continually harassed the customer service personnel." Apparently when US Fidelis did pay a refund they only paid 60 percent of what was owed. The brothers callously called the refund process a "profit center."

All of these complaints led to the Better Business Bureau (BBB) giving them their lowest possible rating: an F.
The BBB's complaint history goes into depth: From April 7, 2009 through July 20, 2009, consumers filed 206 complaints against U. S. Fidelis. For the same period in 2008, consumers filed 132 complaints against the company. In the past 36 months, the BBB received a whopping 1,500 complaints against the company. The rating system comes from the amount of complaints and the way a company responds to them. The rating system works just like grades in school, A+ is the best possible rating, and F is the worst.

Complaints from all years are the same, and include:

problems getting reimbursed for repairs
problems canceling contracts
misrepresentation of coverage
misleading advertisements
misleading, high pressure or improper sales tactics
problems in contacting company representatives
poor customer service
harassing phone calls
failure to remove names from mailing lists when asked

After receiving this F-rating from the BBB, US Fidelis promised to clean up its act—especially with all of the government officials beginning to investigate.

This wasn't the first time the Atkinson brothers had been in trouble. In 1990, Darain Atkinson was just getting out of federal prison after serving time for theft, burglary, check forging and counterfeiting convictions.

The BBB noted that U.S. Fidelis has also done business as Dealer Services, National Auto Warranty Services, NAWS, and The Atkinson Group of Companies.

The first widely-publicized legal problem can in January, 2009, when Subaru of America filed a suit against National Auto Warranty Services alleging that their direct-mail solicitations were misleading consumers into thinking that NAWS was affiliated with Subaru. The responded with a $30,000 settlement, agreement not to use the Subaru product name or trademark and changing their name to US Fidelis.

Almost a year later, in December 2009, US Fidelis settled with BMW for $200,000 in a very similar suit. BMW was upset with US Fidelis for mailing BMW owners misleading direct-mail solicitations that included language like "BMW Notification" and "Dealer Warranty Division." BMW filed suit claiming that US Fidelis used false claims about factory warranty coverage, a violation of federal trademark infringement laws, unfair competition and false advertising. In addition to the money, US Fidelis has agreed not to use the BMW name or trademark and not to suggest an affiliation with them to consumers.

Obviously, despite their "sincere" promise to the BBB, US Fidelis didn't clean up anything. To an even casual observer it would seem that their policy of not making changes unless threatened with legal action is pretty much their standard operating procedure. For example, US Fidelis was selling its own product warranty, an additive-based vehicle protection product called AutoLifeXtend. However, when Missouri Attorney General Chris Koster filed a lawsuit against companies which sold those, in 2009, they stopped selling it just in time to avoid being named in that suit as well.

In January, 2010, another civil suit was filed, this time invoking the Racketeer Influenced and Corrupt Organizations Act (R.I.C.O.), a federal racketeering law. It accuses the company of conspiracy to commit fraud. It is seeking class-action status. The suit claims the company "intentionally, fraudulently, maliciously, knowingly, and conspiratorially" cheated consumers... as recently as September, 2009.

This takes us to the current investigation: 43 states' attorneys general are investigating US Fidelis for "unfair and deceptive practices" in the sale of its extended auto warranties.

Deceptive practices include:

Misleading people into believing that they are affiliated with dealer or manufacturer
Warning you that your factory warranty has expired or is about it expire
Telling you that you quality for something

BANKRUPTCY

In March, 2010 Missouri Attorney General Chris Koster "accused the brothers of plundering the firm to keep assets out of creditors' reach, and urged a bankruptcy judge to appoint an independent trustee to run the company."

The Atkinson brothers paid themselves very, very well—each receiving a base salary of $96, 923 and $25,000 in weekly draws, around $1.4 million annually... at least on paper. Former CFO and VP of Operations, Philip Jehle, accused them of stealing $100 million from their own company—a full two years before the bankruptcy. He attests that they spent money (lots of money) on their company credit cards and by having their company cover their personal bills to fund their over-the-top lifestyle, including the mortgage and landscaping on their mansions. And the St. Louis Dispatch reports that US Fidelis paid the brothers "about $20 million in salaries, bonuses and other expenses that included mansion construction and millions in cash withdrawals."

Missouri Attorney General Koster believes that the US Fidelis bankruptcy filing is evidence of their corporate theft. The filing includes an "18-page exhibit listing about $20 million in payments made last year to the Atkinsons or on their behalf."

According to its recent bankruptcy filing, the Atkinson brothers — and companies they control — owe US Fidelis more than $65 million. (This is separate from the $100 million.) The filing says Darain Atkinson owes the firm $28.2 million; Cory Atkinson owes $20.5 million; and the brothers' real-estate holding companies owe about $17 million.

However, Scott Eisenberg, US Fidelis' chief restructuring officer, believes "the Atkinsons and their real-estate holding companies owe US Fidelis more than $65 million."

If the Atkinsons don't pay the money they owe they may find the creditors coming after their assets: the mansions, boats and Italian go-carts.

In 2009, US Fidelis made a gross revenue of $264.5 million. At one point, they employed over 1100 people. This past winter was a chilly one as US Fidelis laid off 600 workers. At the time this article was written they still employ around 100 people, who spend their days trying to keep customers from canceling contracts. The company has to pay back its finance company each time a customer cancels.

U.S. Bankruptcy Judge Charles E. Rendlen III has set April 5, 2020 for the first meeting of US Fidelis creditors.

Read consumer complaints: http://www.consumeraffairs.com/auto_warranty/us_fidelis.html