EAST ST. LOUIS, Ill. (AP) - Two executives with a Florida-based telemarketing company admitted in federal court Monday that they sold bogus auto-service warranties in a scheme federal prosecutors say garnered nearly $40 million from 15,000 customers over two years.
Christopher Cowart, 49, of Fort Lauderdale, Fla., and Cris Sagnelli, 45, of Boca Raton, Fla., pleaded guilty in U.S. District Court to a felony count of using a fictitious name as part of a mail-fraud scheme they carried out while doing business as Transcontinental Warranty Inc.
Cowart was president and Sagnelli vice president. Prosecutors say the company perpetuated the scheme from June 2007 until a federal judge in Chicago ordered it to halt its use of deceptive "robo-calls" warning people their auto warranties were expiring and offering to sell them new service plans.
That injunction followed a lawsuit against Transcontinental and a similar company by the Federal Trade Commission, which sought to halt a wave of as many as 1 billion automated, random, prerecorded calls about auto-service warranties.
"The scheme was like a tsunami of consumer calls," pitching the bogus warranties to homes while overwhelming businesses and even targeting government offices in all 50 states and several other countries, Steve Wigginton, the top federal prosecutor for southern Illinois, told reporters after Monday's hourlong hearing.
Cowart and Sagnelli, who were freed on bond after the hearing, each face up to five years in federal prison and as much as $250,000 in fines when sentenced March 21. Because the crime involved telemarketing, both men also could face an additional five years behind bars.
Under federal law, restitution is mandatory, though federal prosecutor Bruce Repper, told the judge that figure remains unclear.
According to court documents, automated calls from a company Transcontinental hired told consumers their vehicle's factory warranty would expire or soon lapse, then transferred people to Transcontinental telemarketers who falsely said they were staffing the "Warranty Service Center." But Transcontinental had no affiliation with automakers and no ability to extend or reinstate the manufacturer's warranty. Instead, they sold third-party "vehicle service contracts."
Where Transcontinental went wrong, Wigginton said, is that it led people to believe the calls were on behalf of automakers and used a fictitious name in dealings with consumers. The company also suggested it was capable of extending or reinstating warranties and that the product being sold was an actual warranty instead of a service contract, which often includes a waiting period for the repair and allows repair shops to use replacement parts from junkyards.
Vickie Ames, 61, of Birmingham, Ala., described for reporters how she took one of the robo-calls in 2008 shortly after her husband's death left her handling bills and other matters he typically addressed, including her then-year-old Nissan Murano that still had three years of warranty coverage.
"It never occurred to me it was a scam. They sounded legitimate, and it was convincing," she said. "You can't believe how well they are versed in what they do."
Ames agreed to a $290 down payment, giving the employee her credit card number and her Nissan's vehicle identification number. But she said she became suspicious as the conversation was ending.
"She said, "Yes, we have another one.' That was my first tipoff that I had made a mistake," said Ames, who immediately called her credit-card company and had the charge reversed.