Earlier, in June of this year, we wrote about how the Atkinson brothers behind US Fidelis were handed indictments for felony charges including unlawful merchandising practices, stealing, and insurance fraud.
The Atkinson’s sold vehicle repair coverage to consumers but according to the indictments allegedly kept refunds due to clients, charged excess fees not stated in contracts and told clients they would get a pro rata refund if they canceled their contract, while intending to keep a portion of any refund. The Atkinson’s allegedly lead consumers to believe that their company was affiliated with auto manufacturers and dealers, the consumers’ auto warranty was about to expire and that they could extend it or reinstate the manufacturer’s warranty. – Source.
Last night word hit that US Fidelis’ biggest creditor, Mepco, may have been in on the scheme the entire time. Unsecured creditors are raising this accusation and if successful could potentially free up millions to go towards creditors other than Mepco. As of right now Mepco is expected to receive most of US Fidelis’ $25 million estate. You remember that estate, yes? See below.
Owed unsecured creditors of US Fidelis are now saying that “Mepco was more of an enabler than a victim in the US Fidelis’ collapse. The creditors say Mepco provided the financial grease that made US Fidelis possible.” – Source.
Mepco is the only secured creditor in this case and claims it has been left with $57 million in bad debt. Right now Mepco has a lien against the estate but the plaintiff committee are asking for this to be invalidated.
According to the complaint, “two simple and undisputed facts illustrate the mutual dependence between Mepco and US Fidelis. First, after January of 2007, Mepco’s only business was purchasing Payment Plans for VSC’s and automobile related product warranties. Mepco did nothing else. Second, US Fidelis was the largest single customer for Mepco. No other company was even close. By the end of 2009, Mepco had a total of $406.3 million of Payment Plans on its books, and it had purchased $206.1 million of them from US Fidelis. In sum, US Fidelis was over one-half of Mepco’s entire business.” In the last two years of the company’s existence Mepco financed 95.38% of all Us Fidelis deals in 2008 and 2009. – Source.
The complaint from the unsecured creditors alleges that Mepco knew of the inner workings of the company “because it received insider information about US Fidelis from a highly placed US Fidelis executive, Fred Kolb, who was the chief financial officer.” Apparently, “on October 9, 2007, Fred Kolb, US Fidelis’ Chief Financial Officer, using his own personal email account, sent Scott McMillan of Mepco an email informing him that Darain had caused some contracts to be financed with Warranty Financing LLC, a small startup financing company that had just been established by a former Mepco employee. The email also provided Mepco with Darain’s thinking on a proposed $100 per contract holdback, and mentioned an upcoming in person meeting in Chicago.” – Source.
We will cover more as this story unfolds.
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