Wednesday, November 10, 2010

NASCAR Fans Got Fleeced By US Fidelis


Last year we were livid with ESPN analyst and NASCAR owner Rusty Wallace when he chose to take on the US Fidelis extended vehicle warranty company as a primary sponsor for one of his Nationwide Series teams.

The company was run by felons who were reported to be actively engaged in fraud through deceptive advertising, misleading direct mailings and illegal phone solicitation. Click here for the Today Show report on US Fidelis back in 2009.

Wallace and his son Steven made a personal appeal through a series of TV commercials for NASCAR fans who needed help with expired warranties on their vehicles to choose US Fidelis.

Thousands of fans responded to the Wallace family and bought the US Fidelis product. The average cost of a US Fidelis extended warranty was three thousand dollars.

Needless to say, the whole thing smelled bad from the start. One year later the company is closed, the extent of the scam has been exposed and Rusty Wallace Racing has moved on to other sponsors.

For those of you who may have fallen victim, here is the latest official information on US Fidelis:

The Washington Attorney General’s Office spearheaded a multistate settlement with the former owners of U.S. Fidelis that ensures the Atkinson brothers will never again sell auto service contracts or telemarket in 11 states. The agreement also severely restricts how the duo advertises any other product or service and requires them to turn over nearly all their assets.

The business practices of U.S. Fidelis, which operated as National Auto Warranty Services and Dealer Services until its bankruptcy last spring, have been widely reported. More than 400,000 consumers nationwide paid the Wentzville, Mo., company thousands for overpriced service contracts that were sold through illegal and deceptive means. Its founders, Missouri brothers Darain and Cory Atkinson, are accused of plundering $101 million in corporate assets for their own personal gain.

“U.S. Fidelis suckered consumers through a multitude of lies while its owners, the Atkinsons, drained money out of the company to maintain a lavish lifestyle,” Attorney General Rob McKenna said. “This settlement helps ensure they won’t harm Washington consumers again.”

Attorneys general sued the defunct company and the Atkinsons shortly after March 2010. Assistant Attorney General Mary Lobdell, with the Washington Attorney General’s Consumer Protection Division, led the investigation.

The states accused the defendants of a variety of illegal actions stemming from deceptive junk mail, illegal telemarketing robocalls and misleading TV ads. They alleged the company’s solicitations misled consumers to believe their auto warranties had expired or would soon expire and confused customers into thinking that they were being contacted by a manufacturer or other entity affiliated with their original vehicle warranty. Many consumers who were led to believe they were purchasing a warranty providing “bumper to bumper” coverage of all major repairs later found the contracts full of exemptions.

“Only a vehicle manufacturer can provide an extended warranty,” Lobdell said. “U.S. Fidelis hooked consumers by using a multitude of lies, including describing expensive service contracts as ‘extended warranties’ provided on behalf of specific manufacturers.”

The states also accused the defendants of violating Do-Not-Call laws and using technology to bypass caller ID and mask the origin of sales calls, refusing to allow consumers an opportunity to review the complete written service contracts, denying valid refund requests, improperly obtaining consumers’ personal information and violating state licensing and registration laws.

Washington filed its version of the settlement today in Thurston County Superior Court. The Atkinsons denied any wrongdoing but agreed to surrender at least 90 percent of their assets pursuant to a related bankruptcy agreement, including assets from 20 related corporations. The settlement also requires the Atkinsons to comply with a lengthy list of restrictions on future business and marketing practices. Specifically, they are prohibited from:

Telemarketing in any of the participating states.
Marketing or selling motor vehicle service contracts (unless employed at a dealership, and then only in connection with the sale of a specific vehicle).
Misleading consumers about the source of an offer.
Misrepresenting their relationship with a consumer.
Representing that an offer is “exclusive” or “final” unless it can be substantiated in writing.
Disproportionately targeting consumers 65 or older.
Selling or providing personal information obtained from a consumer to unaffiliated companies for marketing purposes without the consumer’s consent.
Additionally, the settlement requires the defendants to provide sufficient disclosures in solicitations, honor a consumer’s request to be removed from a mailing list and comply with laws and regulations related to fair business practices, credit offers, privacy rights and licensing and registration requirements.

The Atkinsons each owe Washington more than $4.6 million in civil penalties, as well as about $300,000 for costs related to the investigation and litigation. With the surrender of their assets, any recovery will come from the U.S. Fidelis bankruptcy. The states continue to negotiate with the bankruptcy estate to benefit creditors and consumers.

The following states participated in the settlement: Arkansas, Idaho, Iowa, Kansas, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Washington and Wisconsin.

BACKGROUND

U.S. Fidelis was the nation's No. 1 extended-warranty dealer for autos and a primary NASCAR sponsor before its collapse. State attorneys general began investigating U.S. Fidelis in 2008. The company declared bankruptcy on March 1, 2010. The states – whose earlier attempt to negotiate a settlement had stalled – filed their lawsuit soon after the bankruptcy announcement.

In October 2010, a federal bankruptcy judge approved a settlement that requires the Atkinsons to give $10.5 million to U.S. Fidelis and surrender millions in additional assets, including Darain’s 40,000-square-foot mansion, a 50-foot yacht and 10 other boats, 11 autos and 14 motorcycles. The bankruptcy settlement was conditioned on the states’ agreement to settle claims with the Atkinsons.

In addition to the lawsuits filed by the state attorneys general, Verizon sued U.S. Fidelis for making 3 million illegal calls to cell phone customers over seven months in 2008, and BMW and Subaru brought a lawsuit for trademark infringement. U.S. Fidelis’ contracted telemarketer, Voice Touch, was sued by the Federal Trade Commission for robocalls. In March, Voice Touch agreed to pay more than $655,000 in consumer restitution and is banned from telemarketing.

Federal investigators continue probing whether U.S. Fidelis committed any criminal wrongdoing.


Any way you slice it, this was dirty pool where NASCAR fans were concerned. The dollars given to US Fidelis after the personal appeal of Rusty and Steven Wallace will probably never be returned. Wallace has been mum on the subject.

As we originally pointed out last year, Wallace barely escaped a much greater penalty for his choice to associate with the Atkinsons and US Fidelis. In late 2009, the Federal Trade Commission extended the rules covering the liability of celebrity endorsers where products were concerned.

The new rule is "both advertisers and endorsers may be liable for false or unsubstantiated claims made in an endorsement." In other words, the celebrity faces selling a product or endorsing a service are just as liable if the product or the service turns out to be fraudulent or a scam.

In trying to guard consumers against exactly what happened with US Fidelis, the FTC said the following. "The determination of whether a speaker’s statement is an endorsement depends solely on whether consumers believe that it represents the endorser’s own view."

In very plain words, Wallace and his son personally endorsed US Fidelis in ads that were specifically targeted at the very brand loyal NASCAR fans. It is impossible to estimate the amount of money US Fidelis made directly from the Wallace TV commercials and the NASCAR fan base.

Ultimately, the Chapter 11 filing of US Fidelis in March of 2010 showed that the company still owed Rusty Wallace Racing slightly more than 500 thousand dollars. So, maybe what goes around comes around after all. Any way you look at it, that's dirty money.

Links to references on this topic are listed below. Happy to have your comments. This is a family-friendly website, please keep that in mind when posting. Thanks for taking the time to stop by The Daly Planet.

Scenedaily.com - US Fidelis Owes Rusty Wallace
Daly Planet - Trouble Brewing For Rusty Wallace And US Fidelis Sponsor
Bnet.com - FTC Considers Extending Ad Jurisdiction
Bnet.com - New FTC Rules For Bloggers And Celebrities
STLToday.com - US Fidelis Founder Goes From Prison To The Pinnacle
STLToday.com - Former Owners Of US Fidelis Settle With 11 States

21 comments:

OSBORNK said...

I saw it was a scam from the first time I saw it. Rusty's promoting a scam product along with the constant pushing of Extenze by others in NASCAR portrays the "sport" as similar to professional wrestling. The phony cautions, selective enforcement of unwritten rules and manipulated outcomes drives away fans who desire a true competition. NASCAR's decision to let Rusty and his children represent the sport on TV does not inspire confidence.

Anonymous said...

John, there's no such thing as an "ex felon" Either you are a convicted felon or you are not. These clowns are convicted felons.
Rusty is a "conscripted fool".

Anonymous said...

Nothing Rusty says/does would surprise me. It confirms the values or lack thereof he has.

51 yr. fan said...

Great public service column JD!

I got one of the "time sensitive"
notices last week on my three year
old truck. It had a Fort Lauderdale return address; the home
of "boiler room" hucksters, although the company was from Missouri. Big Suprise. I wish I had kept the information for your records.

I wish there was a way that whoever
is providing the data to these crooks could be included in the
legal proceedings. I guess when
you agree to one of the Privcacy Statements from whomever, you open the world to your business.

AncientRacer said...

Fine, fine article JD.

Ronald Reagan used to say about the Russians "Trust but verify." I have found that to be a good rule in commerce. From the moment I get up in the morning to the time I go to sleep at night somebody is trying mightily to separate me from my money for something or other. So if an offer seems odd in some way I try to check. I am not perfect, and I have been had from time to time, but I do try. The end result is that while I am no smarter I am better informed and the only celebrity endorser I trust is Tony the Tiger -- but only on the subject of Frosted Flakes.

Mike (Detroit) said...

Looks like some ugly stuff is sticking out of that wholesome NA$CAR balloon. That balloon may even pop one day. I guess it's got a slow leak right now.

Nick Doyle said...

JD,

The first time I saw one of those ads, my immediate thought was, "What a scam." Future viewings did nothing to change that opinion.

Your post was a shock, however. I never expected it to be as big a scam as it apparently turned out to be.

If NASCAR is interested in regaining some of its lost credibility, it might consider banning Rusty from any NASCAR activities (to include all race tracks) for two years for "actions detrimental to stock car racing" and the same for Steven for a year (a less severe punishment for a driver than an owner and for a son who was obviously influenced by a father).

They should both receive hefty fines as well -- considering the price many NASCAR fans paid for trusting them -- especially Rusty as a particularly well known former racer.

Excellent job of reporting.

Regards,

Nick

brad said...

JD, As ususal you were right on point. Back a long time ago you put up an article about this issue for you fans to read. At the time it was widely dismissed by most folks in Nascar land. Your readers were tipped off and cautioned to be very weary of this scam. Most of us knew what it was but I'm sure some of your readers were educated by your work. A lot of fans blindly support Nascar sponsors and I would like to say good job and thank you for trying to help them not get shafted. I'm sure you know the Planeteers appreciate your work regardless of what some "unbiased" (cough) media types say. Thanks for your hard work.

Anonymous said...

those long time fans like myself remember a time when NASCAR was an advertising phenomenon. Anything Dale Earnhardt Sr did commercials was an instant hit but more important - drivers checked the background of the company althoug it was not needed as these products were all main-stream.

I have been a NASCAR since and before 1979 - I can remember races on Wide World of Sports that gave you a small glimpse and cal also remember the pay per view at Pocono that my cable company gave away free - apparently no one purchased it or they did not have the capability - do not remember why.

Point is - that when it came to a choice of products my first thought would be - which one is advertised on NASCAR telecasts. Sadly people do not think like that anymore mostly because of fidelis, cialis, extenze and such commercials. When NEXTEL became the title sponsor I changed my cell service to them and have remained since - switching to sprint a few years ago. When it was time to purchase a car - Chevrolet was first on my mind. and you get the idea.

Of course the drivers actually did the commercials back then and most were specially produced for NASCAR telecasts much like Super Bowl commercials are now and that has mostly ended. Now you see Dale Jr and Bret Favre doing Wrangler commercials - of which I still have a few- bough at K-Mart - also a NASCAR sponsor for many years.

Why and how did we get here? Economy? Most Likely. TV ratings decline? also likely.

Sponsors have left nascar big-time but that can only reverse when NASCAR gets better. It likely goes back to fixing NASCAR.

The Mad Man said...

I keep getting those "time sensitive" warranty things in the mail for a vehicle we haven't owned in over 3 years. There are a lot of scams out there so it definitely behooves the consumer to research these companies just as it would behoove team owners to research their sponsors.

In Crusty's case, I'm surprised he didn't remember Big Daddy BBQ Sauce and Junie Donlavey.

JohnP said...

It's fairly easy to see through the bogus advertising that the Wallace's did. The adds sent my skin crawling that something was wrong. It's ashame some Nascar fans got hurt by Rusty's actions to support this fraud of a company. He was just running for the cash, and that is plain and simple WRONG. Might be legal (for now). But clearly shows ZERO ETHICS. I understand there is a bill slowely working through congress to hold the promoters partly responsible for the product they peddle. I hope it passes. Jimmy Johnson (NFL JJ, Not Nascar) is just as guilty for promoting Extenze in the way it's promoted. It's simply a Viagra competitor and makes nothing "bigger".

But, at the end of the day it's up to the consumer to "think" "research" and make "informed decisions".

Caveat Emptor - Let the buyer beware.

Sally said...

If anyone buys something just because it's a Nascar sponsor without checking into it, woe be unto them. I'm soory so many folks forgot the warning, "If the deal seem too good to be true, it probably is."

Kevin said...

I thought the whole thing was bogus from the first time I saw it. Sorry, Kenny (who I like a lot more than his brother and son) even marketed some bogus throttle body device to "save gas" - he even went on CNN. Have I had Red Bull - yes. 5 hour energy I would try even if they paid me.

alex said...

It's too bad for anyone who lost money, but that doesn't excuse them from blame. Anyone with a car warranty has the paperwork to be able to discern when it expires or if it already has. It's pretty easy to contact the vehicle manufacturer to ask if they have a relationship with US Fidelis, I'm sure they would be forthcoming about that.

While I agree that their practices were illegal, people should have done just a bit of homework before cutting a big check for these "warranties".

Vicky D said...

I felt this sponsor was like the Angela's Motorsports deal several years ago except it hurt the driver/crew instead. Everyone should be careful on what they purchase with their hard-earned money. Nothing surprises me!

Anonymous said...

Oddly, NASCAR approved this sponsor during the process of cRusty bringing it in. Approval came after legal prosecution had commenced. Yet NASCAR won't approve sponsors that conduct their business legitimately, like Verizon or Spencer Gifts.

GinaV24 said...

Wow, and yet Rusty and Steven continue to endorse other products they have as sponsors. I wouldn't take or use anything based solely on a celebrity endorsement.

Of course there are a lot of companies out there who have made a lot of money from consumers. I'm sure that Rusty has been advised by his lawyers to keep his mouth shut on this. I'm just surprised he's managed to do that since he's notorious for running his mouth before engaging his brain.

Anonymous said...

Just because a driver endorses a product, it doesn't mean anyone should blindly purchase it. I would never drink Red Bull because I'm aware of my personal health risk to do so. Consumers have to accept responsibility for their own decisions. A celebrity endorsement should only be taken into consideration after a product has been researched, especially when it involves a lot of money. It's pure ignorance to blame any poor decision on advertising, whether or not a celebrity is involved. NASCAR fans shouldn't be exempt from having to show a little common sense.

Anonymous said...

The Wallace’s have proven time and time again to have no ethics, morals or anything else that might prevent them from hurting those not called Wallace. They are guided by one principle and one principle only, do whatever will line their own pockets with money. I promise you that if Rusty could make more money driving a car than he does announcing, he would be driving it.

Bottom line, if a Wallace endorses it, run like hell from it from it sure isn’t going to be good for you!!

Brought to you by the people hurt by Fidelis, 5 hour energy, Stacker 2, and the soon to be named later sponsors of the Wallace’s

Finance Guy said...

Well said. I used to be a Rusty Wallace fan, but I make it a point of avoiding any product endorsed by Rusty and Stephen Wallace.

BTW - I believe Brendan Vaughan also endorse US Fidelis.

Blue Duecer said...

Nice article, FYI, there is now a class action suit against extenZe that has been filed in CA that is scheduled to be settled on Apr 15 2011. They have apparnetly violated a court restraining order for false advertising amongst other new charges. They are offering partial cash refunds or ExtenZe racing gear as a settlement. You might check into it if interested