The brothers who own US Fidelis have agreed to pay the Wentzville company about $10.5 million — plus surrender assets that might fetch at least $10 million more — to settle allegations that they plundered the bankrupt firm at the expense of creditors and consumers.
If the deal is approved, it offers some hope to US Fidelis creditors and customers who bought extended auto-service contracts from the company and believe they are owed refunds.
Darain and Cory Atkinson, however, would be left with little. The proposed settlement allows the brothers' wives to retain $500,000 each and keep some jewelry, clothes and household items. The women would be prohibited from turning those assets over to their husbands.
Under the proposed settlement, filed Thursday with the St. Louis bankruptcy court, US Fidelis would not seek to recover about $1.1 million the brothers have paid to retain criminal-defense lawyers. Darain and Cory Atkinson have not been charged with any crime, but US Fidelis has acknowledged that it is sharing financial information with investigators from the U.S. attorney's office.
Before a series of mass layoffs in December, US Fidelis was the nation's No. 1 seller of the auto-service contracts. To some attorneys general and consumer advocates, the company was the worst offender in an industry rife with consumer fraud and illegal telemarketing.
The proposed deal has the blessings of the Atkinson brothers and their wives, as well as a committee of unsecured creditors and an independent management team that is now overseeing the company. U.S. Bankruptcy Judge Charles Rendlen III must sign off on the proposed settlement, and a hearing on it has been scheduled for Oct. 20.
In a lawsuit filed in April, US Fidelis accused the Atkinsons of stripping the company of at least $101 million through high salaries, cash distributions and company spending that kept the brothers, and their families, in the lap of luxury.
Although the settlement applies only to the $101 million suit filed by their own company, it could have larger ramifications.
Lawyers for the Atkinsons have long insisted that they favored a so-called global settlement — a single agreement that would shield the brothers from current and future civil suits.
No settlement could give the brothers blanket immunity from litigation, but this one strongly discourages those suits.
Under the proposed deal, US Fidelis would establish a fund from assets surrendered under the settlement. US Fidelis creditors and customers would be able to tap into that fund only if they agree not to sue the Atkinsons.
How much money will end up in the settlement pot is anyone's guess. That's because, under the proposed settlement, much of what would be surrendered is difficult to value. Assets include 10 residential properties — including mansions and vacation homes purchased or built at the height of the real estate bubble.
For instance, Darain Atkinson and his wife, Mia Atkinson, paid $26.7 million to build the couple's primary residence — a massive complex on the shore of Lake Saint Louis. The house currently is listed for sale for $14.9 million.
The Atkinson brothers' estates also include 11 automobiles, 11 boats and 14 motorcycles and other vehicles — and US Fidelis is unlikely to recoup the top-dollar sums the brothers often paid.
Under the proposed deal, the Atkinsons would surrender much of their home furnishings and jewelry. The latter includes at least five Rolex watches, 17 baubles from Tiffany & Co. and 11 rings and bracelets by Cartier.
Besides getting $500,000 each, the brothers' wives would get to keep some belongings, according to the proposed settlement.
Mia Atkinson would be allowed to keep up to $25,000 in jewelry, household furnishings up to $50,000 and two vehicles with a total resale value no greater than $75,000. Heather Atkinson, the wife of Cory Atkinson, would be allowed to keep up to $75,000 in jewelry and furnishings and two vehicles with a combined resale value not exceeding $50,000.
In addition, about $250,000 will remain in education-savings plans for three children of Cory Atkinson.
As part of the proposed settlement, the Atkinsons provided asset disclosures. These includes page after page detailing furniture, business interests, bank account balances, insurance policies and the like. According to lawyers involved in settlement negotiations, these sworn disclosures were critical to establish that the brothers haven't stashed money out of reach.
"If it turns out they're lying about their assets, everything is resurrected," said US Fidelis lawyer Rob Eggmann, noting that the deal would be declared void and the brothers could be charged with perjury.
David Warfield, a lawyer for a committee of unsecured creditors, led the settlement talks.
He declined to estimate the resale value of the Atkinsons' possessions, but he said US Fidelis creditors 'should ultimately recover well over $20 million as a result of this settlement."
Norman Pressman, a bankruptcy lawyer representing Darain Atkinson, said his client kept his word.
"The first statement I made in court was that Darain is willing to fall on his sword and surrender his assets," Pressman said. "And that is what he has done."
Spencer Desai, a bankruptcy lawyer representing Cory Atkinson, said he expects the proposal to meet with some resistance from creditors but ultimately win court approval. "If people look at it objectively, it's a good result for creditors," he said.
One of those creditors is Missouri Attorney General Chris Koster, who is suing US Fidelis and the Atkinsons for consumer fraud. His office is reviewing the settlement and is not prepared to comment on it, a spokeswoman said.