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Insurance scam leads to lawyer's interim suspension

A Beverly Hills lawyer serving time in prison for masterminding a plot to sink his luxury yacht in order to collect $3.5 million in insurance money was placed on interim suspension by the State Bar. REX K. DeGEORGE [#35901], 66, lost his license to practice May 4, 2002, after being sentenced to seven and a half years in federal prison following his March conviction on 16 counts of conspiracy, mail fraud, wire fraud and perjury.

The one-time insurance adjuster turned lawyer also was ordered to pay $2.8 million to Cigna Property and Casualty Insurance Co. as restitution for what the company spent to sue DeGeorge in its efforts to rescind a $3.5 million insurance policy.

Prosecutors said DeGeorge bought the 76-foot "Principe di Pictor" (Prince of Pictures) in June 1992 for $1.9 million and then set up phantom companies and made phony transactions to boost the yacht's value to $3.6 million.

He first transferred the contract to Continental Pictures Corp., a Panamanian-registered firm located in Switzerland. Next, Continental sold the yacht for $3.6 million to Polaris Pictures Corp., a firm in which DeGeorge served as president, CEO, secretary, chairman of the board, sole director and sole shareholder.

No money ever changed hands, according to federal prosecutors. The top-of-the-line yacht, which DeGeorge said would be used to entertain movie stars and moguls, featured Mercedes Benz engines, his and hers bathrooms with Italian marble and a state of the art satellite navigation system.

On its maiden voyage off the coast of Naples, DeGeorge and two associates tried to sink the yacht by drilling holes in its hull with power tools, prosecutors charged. The scheme foundered, however, when the boat didn't sink and the trio, floating in rafts nearby, was rescued by the Italian coast guard.

They had been ambushed by drug smugglers, they told their rescuers, explaining that a former Russian submariner named Andrea Libovich, hired to captain the vessel, held them at gunpoint and locked them up below deck. Libovich and two associates were presumed to be drug smugglers, but when they realized the yacht was too slow to elude capture, they drilled the holes in the hull and fled in a speedboat bound for Libya, the men told skeptical authorities.

The Italians, although suspicious that DeGeorge and his companions were themselves involved in a drug deal gone sour, eventually released them for lack of evidence.

DeGeorge pursued his insurance claim, but one of Cigna's attorneys found that he had in fact made claims - and been paid nearly $500,000 - for three other yachts which were lost at sea and never found. According to court documents, one yacht was stolen by Peruvian coffee merchants who boarded the boat after indicating they were interested in buying it, the second sank off the coast of Italy and the third was lost after a series of suspicious explosions off the coast of Los Angeles.

In addition, investigators found DeGeorge had filed 29 insurance disability claims, as well as a burglary claim and at least six claims for items lost while traveling abroad.

Cigna sued DeGeorge to void the policy on the Principe. After a month-long trial, U.S. District Judge J. Spencer Letts ruled for the insurance company, calling DeGeorge a "lawyer-conspirator" and saying he was "without any credibility as a witness."

At one point in the trial, he told DeGeorge's lawyers: "You're asking me to put together unlikely plus unlikely plus unlikely plus unlikely plus unlikely plus unlikely plus unlikely and then say the net result of all those unlikelys is likely."

Besides ordering DeGeorge to pay Cigna's legal bill, Letts referred the case to the U.S. Attorney for investigation.

In addition to charging DeGeorge, prosecutors indicted his accomplices, Paul Ebeling of St. Louis, and New York cameraman Gabriel Falco. They said DeGeorge needed Ebeling to help with the business transactions and Falco knew how to captain a yacht.

Both men eventually admitted the story about the Principe's sinking was fabricated and testified against DeGeorge in the criminal trial. Ebeling was sentenced to the 521 days he served in jail, and was fined $40,000 and given community service, and Falco was sentenced to two years of probation.

During the criminal trial, assistant U.S. Attorney Eileen Decker told the jury the three men tried to sink the Principe "for one reason and one reason only: for the insurance money." Defense attorney Mark Geragos said the transactions involving the sale of the yacht were legitimate and insisted that DeGeorge's account of the Principe's sinking was true. "Libovich is the one who tried to sink the boat," Geragos told the jury. He accused the insurance company of trying to get out of paying the claim.

But the six-man, six-woman panel didn't buy it, and convicted DeGeorge of one count of conspiracy, three counts of mail fraud, seven counts of wire fraud and five counts of perjury.

DeGeorge was not present for the reading of the verdict; his lawyer said he was undergoing heart surgery.

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