East St. Louis • Federal prosecutors have secured guilty pleas in the first-ever criminal prosecution related to the sale of extended auto-service contracts.
Christopher Cowart and Cris Sagnelli were president and vice president, respectively, of Transcontinental Warranty, a service-contract seller based in Fort Lauderdale, Fla. The firm stopped doing business last year after the Federal Trade Commission sued the company for violating telemarketing laws and sought to have its assets frozen.
The men were back in court Monday, this time to plead guilty to using a fictitious company name in connection with a mail-fraud scheme.
Sentencing is scheduled for March 21, and the men face maximum penalties of a $250,000 fine and five years in prison, plus an additional five years because the scheme involved telemarketing.
Stephen Wigginton, U.S. Attorney for Illinois' southern district, said his office took on the case because it has an expertise in prosecuting telemarketers for fraud and other offenses. In addition, Transcontinental's 15,000 customers included consumers in 15 southern Illinois counties, Wigginton said.
(By comparison, Wentzville-based US Fidelis had about 400,000 customers before it stopped selling vehicle-service contracts amidst allegations of consumer fraud. The company filed for bankruptcy on March 1 and is now operated by an independent management team.)
Cowart, 49, and Sagnelli, 45, appeared in court on Monday to waive their right to an indictment by grand jury and to plead guilty.
Under the terms of a deal reached with prosecutors, Cowart and Sagnelli could be called upon to be cooperating witnesses in other investigations. Wigginton would not discuss what information they might provide, or say whether any other service-contract companies were being investigated by his office.
In court, Cowart and Sagnelli told U.S. Magistrate Judge Donald G. Wilkerson that the government's allegations against them were accurate.
Consumers would receive recorded messages from something called the "Warranty Service Center" warning them that the factory warranty on their automobiles had expired or would expire soon. They were instructed to press 1 to be connected to a telemarketer to extend their factory warranty.
In fact, Transcontinental was selling service contracts, not warranties. Transcontinental telemarketers would not identify their company by name, and they misled consumers into believing they were dealing with auto-makers or their agents.
The case will likely be watched closely on the Missouri side of the region -- a hub for the service-contract industry and the home to more than 40 companies that have sold the aftermarket coverage in recent years. The business practices of many of these telemarketing firms are not substantially different from Transcontinental.
