It’s the indignity that hurt more than anything: You could see it in Rex DeGeorge’s posture. The Beverly Hills attorney and film producer sat uncharacteristically helpless, hunched in a rubber dinghy with two friends 50 miles off the Italian coast, as he watched the Principe di Pictor, his brand-new yacht, slowly sink into the warm brine of the Mediterranean.
Water lapped over the main deck, dragging down the 76 feet. And $3.7 million worth of gleaming fiberglass, teak, and cherry wood that DeGeorge had launched only a few days ago from the Tuscan port of Viareggio. The attorney had obsessed for months over the yacht’s redesign and outfitting—the expanded master suite, the linens from London and Rome, the lavish his-and-hers heads with their Italian marble and gold-plated fixtures—making repeated trips from his Mulholland mansion to the Italian boatyard where the Principe was built.
This maiden voyage was to have been part business, part pleasure. DeGeorge had spoken many times of his plan to make the yacht the heart of a luxury charter service that would ferry Hollywood players from the film festival in Cannes to the baccarat tables of Monte Carlo to the waters of his native Greece.
Pirates, apparently, weren’t part of the plan. But according to DeGeorge, the men he hired to skipper and crew the Principe commandeered the yacht at gunpoint when military patrol vessels appeared on the radar late in the night and made radio contact. The pirates cut two gaping holes in the hull with power tools and sledgehammers so the boat would sit lower in the water and at daybreak decided to scuttle the yacht. “This boat won’t sink,” one of DeGeorge’s companions, Paul Ebeling, warned; the boat had been constructed with airtight bulkheads to keep it afloat even when it was taking on water.
“I can sink anything!” the pirate shouted. “I’ve done it before, and I’ll do it again.”
After crippling the yacht, the pirates fled in a waiting speedboat, DeGeorge says. Seawater had filled every compartment, silencing the twin 1,100-horsepower Mercedes engines, until only the flying bridge with its radars and satellite navigation system remained dry. Then the sinking abruptly stopped. The waterlogged beast just bobbed on the gentle swells, and all DeGeorge and his two friends could do was sit there and wait in an inflatable boat, warily eyeing the occasional shark fin scything by.
“Look,” Ebeling said at last, pointing at a gray speck on the horizon. “Someone’s coming.”
The speck slowly resolved into the form of a military cutter—the Italian patrol boat Zara. Within minutes, the attorney and his friends were plucked from the waters, the yacht was rigged to be towed to port, and their story of betrayal and survival began spilling from DeGeorge as they huddled under blankets and sipped steaming coffee.
“We expected to die,” he said. “They held a gun to my head.” As the pirates raced off toward the Libyan coast, DeGeorge said, he and his friends managed to scramble to the lifeboat and hung on until morning. “Thank God you found us.”
Today Rex Degeorge resides in a cell at Taft Correctional Institution, a privately run federal lockup set in a lunar landscape of sunbaked rock, dust, and oil rigs south of Bakersfield. He is serving a seven-and-a-half-year sentence for insurance fraud and just beginning his appeals, having been convicted of sinking his own yacht, concocting a phony story of piracy, and bilking his insurer. It was DeGeorge, according to prosecutors, who vowed he could sink anything only to be undone by a boast he couldn’t fulfill.
As DeGeorge tells it, he is an innocent man who’s been railroaded by unscrupulous insurance companies and their government toadies. To his former shipmates, courtroom opponents, and the international insurance industry, he is the most prolific, brilliant, and stylish fraud in maritime history. This much everyone agrees on: Though he’s been convicted only for events surrounding the scuttling of the Principe, DeGeorge has lost a total of four luxury yachts, all heavily insured, under mysterious circumstances—mysterious explosions, mysterious collisions, mysterious thefts.
With such a track record, he must be the unluckiest yachtsman since Gilligan set sail on his three-hour tour. But his misfortunes have not been limited to the high seas. DeGeorge may qualify as the Unluckiest Airline Passenger, the Unluckiest Honeymooner, the Unluckiest Patient, the Unluckiest Home Owner, the Unluckiest Worker, and the Unluckiest Art Collector. At times over the years, it seems, he couldn’t leave the house without being beset by disaster. In addition to having the curious habit of losing yachts, he’s been the victim of art thieves, luggage thieves, car wrecks, brain seizures, and other forces majeures. In every case, he was well insured. At one point DeGeorge was collecting insurance payments of $11,000 a month for disabilities his detractors have claimed didn’t exist. The Coalition Against Insurance Fraud admitted him to its national “Hall of Shame.” The coalition’s spokesman proclaims, “Rex DeGeorge is one of the most audacious insurance criminals of all time.”
“Lies,” DeGeorge says. He is sitting in Taft’s visiting room, his prison-issue clothes the color of desert sand. The contempt is visible on his thin face, which has the hawkish profile and heavy eyebrows of the actor Martin Landau. “These are lies from insurance companies who could never defeat me in court if they told the truth.”
He sits back and steeples his fingers. “You are familiar with the Monte Carlo Fallacy?” he says. It’s more of a statement than a question, at once evoking the exotic ports he loves and implying superior knowledge of the finer things in life. “The fallacy,” he continues without pausing for a reply, “explains … how small men who take no risks, who have done little and seen little in their lives, could set out to imprison an innocent man. And I am an innocent man. I will be vindicated. You shall see.”
As he speaks, music filters into the room from a larger inmate area outside. A weekday church service has begun with, of all things, the opening score from the film Titanic. Oblivious of the soundtrack, DeGeorge leans forward and promises, “It’s all here.” He taps a thick bound collection of legal papers, part of his voluminous appeal, which he says is the record of an unfair trial and rigged investigation instigated by the powerful insurance companies he dared to challenge in his legal practice. “They have taken me from my family, knowing the evidence against me is false.”
DeGeorge is trim and healthy looking, despite having recently undergone heart surgery. Although his wife, Kathryn Palmer DeGeorge, says incarceration has aged him terribly, he seems a good decade younger than his 68 years. His bearing is at once charming, introspective, and if not arrogant, certainly aristocratic. It’s clear why he did so well as an attorney, why one insurance company after another caved in to his demands, why as a sole practitioner he was able to defeat huge firms and set a Supreme Court precedent: The man is good.
But when he gets to his history of losing luxury yachts, not to mention the 37 other calamities and claims he has reported to his insurers over the years, DeGeorge has trouble making his case that there is nothing more than bad luck at work. It doesn’t help that the music from the church service has changed to the theme from The Sting.
He insists each of his losses be considered on its own merits, which is where the Monte Carlo Fallacy comes in. It refers to the common misconception that one roll of the dice or spin of the wheel influences the next. Dice players talk about craps being “due” because it has not been rolled in numerous tries. Blackjack players raise their bets because they have lost three consecutive hands and believe “probability” dictates it’s their turn to win. Gambling houses get rich off such flawed logic, because the truth is that each roll of the dice is statistically independent of the last—the likelihood of rolling a seven is always one in six. Many factors influence the outcome of a hand of blackjack, but whether you won or lost your previous bet is not one of them.
DeGeorge sees this same fallacy at work in his case. Over and over, he has heard it said by lawyers, investigators, and judges: What are the odds of one man losing four yachts? His response: No different than the odds of losing one yacht. After all, he says, each event occurred at least six years apart from the others, under vastly different circumstances, and so each should be considered independently, like rolls of the dice. His accusers have succumbed to the Monte Carlo Fallacy, he says, and are ignorant of the true nature of life and luck: Most people never file an insurance claim, while a few unfortunates experience several losses over the course of their lives. “And if you live a certain lifestyle, accept certain risks, then your exposure is all the greater.”
DeGeorge’s strongest argument is that he has not been charged with any insurance crimes other than those related to the Principe—and even then, it took more than a decade’s worth of lawsuits, a grand jury investigation, federal charges, two trials, a pair of enraged judges, and several determined insurance companies to put him behind bars. Every other insurance claim he’s made has been placed under a microscope and then paid in full. Every single one. His sin was not that he made too many bogus claims, DeGeorge says, but that he won too many legitimate ones, both for himself and his clients.
There’s only one problem with his argument, says Neil Lerner, the insurance attorney who was the first person to piece together DeGeorge’s long history of insurance claims. “Accepting his premise requires assuming the dice aren’t loaded, that the game isn’t rigged,” Lerner observes. “And with Mr. DeGeorge involved, that’s an assumption you just can’t make. … He says he’s just unlucky. Well, we don’t insure unlucky people, and he knows that, which is why he never told any of his insurers about his prior instances of ‘bad luck.’ That’s the only way he could get insurance—by concealment, by loading the dice. … Because if God doesn’t like them, we don’t insure them.”
Angelos Karageorge DeGeorge certainly had a lucky start in life. He was born in 1936 on the Aegean island of Rhodes to a wealthy family that owned a ranch, orchards, olive groves, a three-story villa, and the tallest building on the island. His father owned a shoe factory, and by DeGeorge’s own account, he never wanted for anything. He remembers World War II as his one bout with youthful privation—he describes how the British shelling of German positions hit his house and the refuge his family dug on the ranch, tracer bullets singing overhead.
At 16, two years before graduating from high school, he moved to the United States and studied chemical engineering at several Midwestern technical colleges. He changed his name from Angelos to Rex, because he hated it when classmates called him Angie. After earning his degree, he received his green card (and eventually, U.S. citizenship) and got a job designing rocket propellants for the space program. DeGeorge went on to study medicine for a year in Chicago, then had a life-changing experience: He got into a car accident.
“It went to trial, and we won the case,” he recalls. “And I decided I liked the trial lawyer and what he did, and I decided to switch careers….I knew that was what I wanted to do.”
DeGeorge packed everything he had into his ’55 Ford, drove to California, and enrolled in the Hastings Law School. His first job after graduating was with Allstate Insurance. “They gave me a box of files and told me to look for ways to avoid paying claims …. They wanted me to talk people into signing releases, to take a little bit of money for their losses, before they got a lawyer. It was just dirty.”
It was also a great training ground. The tricks he learned in accumulating a stellar 95 percent case-closure rate made him a formidable opponent when he became a solo practitioner and started suing companies like Allstate on behalf of their customers. It delighted him to go after the industry that once employed him, and he made a bundle. He handled a number of criminal cases as well, and he won a landmark California Supreme Court case early in his legal career by proving prosecutors misused statistics to bolster a robbery case. DeGeorge opened an office in Beverly Hills, acquiring a reputation as an aggressive, effective advocate, and began to specialize in international law and high-end personal-injury cases—he counted such iconic figures as the Guccis and the artist Peter Max as clients and friends. But he took on small cases for the poor as well, happy to go to the mat over a thousand-dollar fender bender as zealously as he would over a multimillion-dollar claim. “It’s the principle,” he says with a smile.
DeGeorge eventually scaled back his lucrative international law practice due, he says, to his mounting health problems. He owned a film production company, Polaris Pictures, and lived in a modern 9,000-square-foot house he redesigned at the top of Mulholland Drive (glorious views of ocean, canyon, and valley but with a garish layer-cake construction that even his wife calls an “abortion”). He had a taste for fast cars (14 Ferraris at one point) as well as young women (four wives; his current wife, Kathryn, is 28 years his junior), and a predilection for sailing glittering ships into the world’s most glittering ports. He had spent a lifetime surrounding himself with expensive things. Yet shortly before the sinking of the Principe di Pictor (Italian for “Prince of Pictures”), he walked into a boat shop in Naples and persuaded the young woman behind the counter to accept a foreign personal check for a $2,692 dinghy. The check was bad. “He didn’t have to do that,” says Lerner, who discovered the check while investigating DeGeorge. “He certainly had the money. He did it for the thrill of it—his own friends and codefendants even say that was his motivation. He loved getting away with things, whether it was a small check or a multimillion insurance fraud. There’s no other explanation.”
DeGeorge’s ill-fated experiences with yachts date back to 1970 and the 43-foot Tutania, named for a German flight attendant DeGeorge says he met on a Pan Am flight during one of his trips in Greece. When DeGeorge reported the yacht missing to his insurance company, he explained that after he’d placed an ad to sell the Tutania, two men who identified themselves as Peruvian coffee merchants expressed interest. During a test ride out of Marina del Rey, DeGeorge and a friend joined the prospective buyers in several rounds of gimlets. He and his friend became ill and decided to return to shore in a dinghy while the Peruvians continued their test ride. Some accounts in the legal record assert that DeGeorge said that he fled, fearing for his life, but he maintains he said nothing of the sort and that he simply was “too trusting,” leaving his valuable boat in the hands of strangers.
DeGeorge says he came to suspect the gimlets might have been drugged, for the yacht and the coffee merchants were never seen again. Five days after the incident, according to court records, DeGeorge called the police—delaying the insurer’s subsequent worldwide search for the yacht. Insurance companies consider delay in reporting a loss the number one indicator of potential fraud, and Hartford Insurance Company refused to pay. Then DeGeorge threatened to sue for bad faith, court records state. He knew from his experiences at Allstate that insurance companies fear the enormous punitive damages bad-faith cases can generate, along with the legal fees they incur even when they win. Hartford soon paid DeGeorge $43,000, the full value of the Tutania’s coverage.
Happily for DeGeorge, he had already commenced negotiations for a new yacht and rented a larger slip at the marina before the Tutania vanished. He used the insurance check to pay for a bigger vessel to put in it, the 57-foot Epinicia. In August 1976, DeGeorge told his new insurer, Lloyd’s of London, he had been cruising off the Mediterranean coast of Italy—not far from where the Principe would go down many years later. It was a moonless night, and the boat collided with “a low-profile, dark object,” which DeGeorge concluded was a shipping container that had fallen from a cargo vessel. He says the yacht sank within 20 minutes and that he and his sole companion on the trip, the same Paul Ebeling who would be with him on the Principe’s first and last voyage, leaped into a rubber dinghy. They motored to shore but did not report the sinking until two days later, according to court records, when DeGeorge filed a sworn affidavit at the U.S. Embassy in Greece. Lloyd’s accused DeGeorge of misrepresentations, but when he threatened to sue, the company paid off the $194,000 policy, court records state.
Seven years later, in 1983, DeGeorge reported that his 47-foot yacht, The Sea Crest II, went down off the coast of Los Angeles while he and his second wife, a practicing psychologist, were on board. The boat reportedly sank quickly after several mysterious explosions, which DeGeorge theorized may have been caused by volatile chemicals left behind by a workman he’d hired to paint the boat. DeGeorge and his wife climbed into the lifeboat and reached safety at Marina del Rey. The incident was not reported until four days later, according to court files, when DeGeorge filed a claim with his latest insurer, Fireman’s Fund. After DeGeorge threatened once again to sue, the company paid the full value of the policy, $245,000.
Though the insurance industry has created a shared database to expose a variety of frauds, DeGeorge’s claims didn’t raise any red flags. DeGeorge was eventually reported to California’s Department of Insurance for suspected fraud, says attorney Lerner, yet the department took no action—nor has it responded to repeated requests from Los Angeles magazine for an explanation. DeGeorge’s case reveals just how casual a business marine insurance can be: Policy binders are routinely issued based on an unverified application and a telephone conversation. No one from the Cigna Insurance Company, the Principe’s insurer, had seen the boat before covering it.
Each time DeGeorge insured another yacht, his insurers remained ignorant of his previous claims—and of the pattern they followed. Each time, he escaped in a dinghy. Each time, the only witnesses were DeGeorge’s trusted companions. Each time, it would be alleged, there was a delay in reporting the loss, which made investigating DeGeorge’s stories more difficult. And each time—except in the case of the Principe—the yacht vanished. Peruvian coffee bandits, inexplicable explosions, a baffling collision—insurance companies could suspect all they wanted, but if they had to face jury trials, the only evidence would be coming from DeGeorge and those close to him.
“He really has no rival,” says James Quiggle, spokesman for the Washington, D.C.—based Coalition Against Insurance Fraud, almost admiringly. “He’s a real favorite in our office.”
The industry-funded coalition says insurance fraud amounts to about $80 billion annually, a cost that gets passed on in the form of an extra thousand dollars a year on average to each and every insurance customer. Three quarters of that fraud total arises from millions of mundane, seemingly petty acts—lying on an insurance application about the distance you drive your car to work, for instance—and from routine medical overbilling, rather than the sorts of capers DeGeorge was accused of carrying off.
DeGeorge may be right about the Monte Carlo Fallacy and the statistical independence of his nautical mishaps, but even considered in isolation, each of his yacht losses seems an anomaly. U.S. Coast Guard statistics on annual boating accidents reveal that most pleasure-craft disasters involve small motorboats, collisions with other boats or swimmers, and copious amounts of booze—the usual weekend-water-skier, cooler-of-beer carelessness. Sinkings are relatively rare and almost never happen on the open seas. An insurance industry study of 150 luxury yacht sinking claims showed that three out of four occurred while the boats were docked; none involved piracy. To put DeGeorge’s extraordinary experiences into perspective, of the 8,974 boating mishaps reported to the Coast Guard in 2001 (the last year for which data is available), the average amount of property damage for each was a mere $3,566; DeGeorge’s average over four yachts is $998,000 each. Only 155 of the year’s mishaps resulted in a sinking, and of those, only one involved a vessel in the class of the Principe.
Rex DeGeorge has told his story of the Principe di Pictor in depositions, police interviews, insurance claims, and for this article. He is remarkably consistent, recalling the same details that he first told Captain David Capano of the cutter Zara as the Principe was pumped out and towed to shore in Salerno.
The Principe departed Viareggio three days earlier with a captain supplied by Azimut, the ship’s builder. But the skipper, Romano Romani, wanted too much money—$500 a day—for DeGeorge’s tastes and turned down a counteroffer of $100. Kathryn, who was his girlfriend at the time, says this is characteristic of her husband. “He is not the wild, money-is-no-object jet-setter living on the proceeds of insurance claims,” she says. “That’s the false portrait, but not the reality. Yes, he’ll take extravagant trips spontaneously when most people plan a year ahead, and that certainly seems extravagant. But then you’ll get there and you may be staying at some flophouse next to the airport, not some villa with the turquoise water lapping at your feet, because he got a deal. Dinner is a salad, not steaks. That’s just him.”
His insurance company would say he needed to get rid of Romani in order to carry out his plan to sink the yacht. The change in skippers would prove critical to DeGeorge’s downfall, though no one understood it at the time. Romani left after mooring in Naples, and DeGeorge says he and his two friends began searching for a new captain to guide them to Greece.
With DeGeorge was Paul Ebeling, his longtime client and friend. Ebeling, who was 53, came to Southern California from the Midwest and pursued a variety of careers: He bad been a home developer, a collectible-car dealer, an investment consultant, a high-tech-toupee manufacturer, and the president of a company called Tridon. In the ’80s, Tridon, jointly with the office-products company Olivetti, had been on the verge of releasing what Ebeling calls a revolutionary graphical computer interface called EZ-DOS-It when, as he says, “Microsoft came out with a little product that did the same thing—Windows.”
DeGeorge’s other companion on the trip was Gabriel Falco of Long Island, New York, a 27-year-old who did the camera work on the one production DeGeorge’s company Polaris Pictures is known to have financed—a promotional film for the National Football League’s consumer products division. As Falco would tell it years later in sworn testimony, he occasionally stayed with DeGeorge for extended periods, and the two often partied, drank, did drugs, and pursued women together, despite the three-decades age difference between them. Falco considered him a dear friend.
Their first stop upon arriving at Mergellina Harbor in Naples was for a late brunch at a dockside seafood restaurant, where they chatted with its owner. A half hour later, while having espressos in a nearby cafe, DeGeorge says he and his friends struck up a conversation with a man named Andrea Libovich. He said he was Yugoslavian and was an experienced sailor, having served in the Russian navy. Libovich expressed interest in skippering the Principe, and the next evening he came to try out for the job, carrying two large, bulging duffel bags, DeGeorge recalls. Soon two other sailors, also apparently Russian or Yugoslavian, joined him as crew members. Each carried a pair of black nylon duffel bags identical to Libovich’s. DeGeorge says he didn’t ask what was in them, nor could he read Libovich’s Russian credentials.
Nonetheless, he agreed to let Libovich take the Principe around the harbor to demonstrate his skills. When they raised the boat’s anchors, one had an old, rusted Vespa bound to it with wire—sabotage, DeGeorge explains. Unable to dislodge the scooter, they set sail with it attached to the anchor. According to DeGeorge, this made it impossible to return to the crowded harbor after the test run, because boats rely on their anchors to pull into position. So he hired Libovich on the spot, and they set off for Messina, a larger Italian port where they could pull into a fuel dock and pry off the Vespa. “At that point, we were committed to keep going,” says DeGeorge. “We never suspected what was to come.”
Around midnight, 50 miles from land, DeGeorge says, several vessels appeared on the Principe’s radar, their form unmistakably military. A voice crackled over the ship’s radio, demanding identification. Libovich and his companions suddenly produced guns and ordered Falco to respond that there were only three Americans aboard. Libovich then locked the three below decks.
Six terrifying hours went by as the pirates tried to elude interception, according to DeGeorge; he and the others realized those big bags probably contained narcotics or other contraband. While imprisoned below, the three men heard banging and crashing sounds. They assumed they would be killed, but as the cabin began to fill with water, they were brought on deck, where Libovich made his fateful boast about being able to sink anything. A speedboat soon arrived, and the marauders rode off in the direction of Libya as the marooned Americans awaited rescue, according to DeGeorge. Falco and Ebeling told essentially the same story.
Had the Principe sunk, the case might have gone the way of DeGeorge’s previous three yacht claims. The arrival of the cutter Zara changed everything. The Zara’s captain, David Capano, began to suspect DeGeorge’s story almost right away. First, Capano knew of no other patrol vessels in the area, despite DeGeorge’s contention. Second, why would these Americans entrust their multimillion-dollar yacht to strangers whose credentials they couldn’t read? And what kind of pirates abandon a valuable ship, leave witnesses behind, then speed off in another boat that they could have used all along to elude the authorities? What was the point in commandeering the yacht at all? Even more troubling, why didn’t the men, once in the rafts, use their emergency beacon, their flares, or the radio on the Principe’s flying bridge to summon help after the pirates departed? How could it be that DeGeorge left Naples without finding time to stock the yacht with food but managed to buy an expensive second dinghy—the one he obtained with a bad check—and stock it with enough extra cans of gasoline to either reach shore or come close enough to assure a rescue? Most of all, the captain wondered, why the hell didn’t the three Americans look happy to be rescued when the cutter arrived? In those first moments, as the Zara heaved to, DeGeorge and his buddies had looked positively sour.
The captain’s doubts flared into something far more grave when the U.S. Embassy provided Italian authorities with information identifying DeGeorge as a “person of interest.” There was documentation linking him to a hashish smuggling ring, the Italian Mafia, New York mobsters, Colombian drug smugglers, and even child pornographers. It turned out that in some instances the Treasury Department database that disgorged the information failed to differentiate between the attorney DeGeorge and his clients. The link to the hashish case was an error that hasn’t ever been explained. His ties to kiddie porn? He once sold a car to a man later arrested for molestation and child pornography.
A month went by before U.S. authorities told the Italians that the information on DeGeorge was wrong. DeGeorge and his friends were held in jail for two days before being allowed to move to the Jolly Hotel in Salerno. In the meantime, police took axes to the Principe in search of evidence. They came up empty-handed, but in the process, argues DeGeorge, a yacht that could have been repaired for $150,000 or less was further damaged, then allowed to corrode and delaminate from exposure to seawater, rendering it a total loss. It ultimately sank while docked at Salerno. Three months passed before the Italians released DeGeorge and his friends, without filing charges.
DeGeorge still gets angry as he ticks off his answers to the suspicions his story raised: Why didn’t they look happy to be rescued? “We didn’t look happy on that raft because we were in shock,” DeGeorge explains. “They held a gun to my head. Shock.”
He ridicules the theory adopted by the Italian investigators and American authorities assisting them—that Libovich was a fiction and that DeGeorge and his friends were the true pirates: “All they had to do was question the people who were moored near us at Mergellina….They saw Libovich and his men….But instead, the government and the insurance company fed the Italians lies about me, and they just focused on me.”
This has been DeGeorge’s chief complaint for 12 years, and he has a valid point: American authorities did spread false, extremely damaging information about him. But the conclusion he draws—that the Italians would have pursued Libovich, not him, were it not for the erroneous background information—is contradicted by records and testimony in the case. The Italian and American authorities tried to identify and find Libovich, without success, and the Italians came to suspect DeGeorge for their own reasons, chief among them an early police interview with the Principe’s first skipper, Romano Romani. He recalled that DeGeorge had told him—before they reached Naples—that he would be hiring a Yugoslavian or Russian skipper to take Romani’s place. DeGeorge and his friends had told the Italian investigators that they ran into Libovich by chance after arriving in Naples. DeGeorge, the investigators concluded, had been laying the groundwork for his fraud all along.
And there was the one piece of correct information that the embassy supplied the Italian investigators: that DeGeorge and Ebeling had been alone aboard a yacht that sank mysteriously off the coast of Italy 16 years earlier, leading to a lucrative insurance claim. The two men had made their way to shore in a dinghy much like the one purchased in Naples for the Principe. This was all the authorities knew of DeGeorge’s insurance history at the time, but it was enough. Even the name of the earlier yacht aroused suspicion: Epinicia, for the ancient Greek poems celebrating victory over opponents.
David Allen, the Fort Lauderdale-based Cigna Insurance Company agent who’d sold DeGeorge his policy, was stunned when he learned the fate of the Principe from an embassy official in Rome. A full month had gone by since the rescue, and he hadn’t heard a thing from his client.
Then the embassy official stunned Allen a second time: He described the fate of the Epinicia. As insurance attorney Lerner says, “It was really an ‘Oh, shit!’ moment. That’s when we knew there was a big problem.”
Soon a fax arrived from Salerno on Jolly Hotel stationery and signed by Ebeling (he would later say it was dictated by DeGeorge). Ebeling was identified as the president of Polaris Pictures, which held the title to the yacht. The letter was short and to the point: Why had Cigna failed to reply to a missive faxed a month earlier informing the insurer of the scuttling of the Principe and initiating the claim process? That first fax never arrived, according to Cigna, and officials suspected DeGeorge hadn’t actually sent it.
Cigna turned to Lerner to handle the case with his partner, Donald Sands; their upstart West L.A. firm had a growing reputation for fighting hard and digging deep in problematic insurance cases. Lerner, compact and baby-faced, grew up in New York, where he translated his love of boats and the sea into a specialty in maritime law. Unable to break into the white-shoe maritime firms in New York City—a Jewish lawyer from Long Island would be a liability because so many shipping companies are owned by Arabs, he says—he moved west, lucked into an inexpensive rental on the sand in Malibu, and started defending insurance companies. Using Cigna’s worldwide network of investigators and the company’s many connections, Lerner began to construct a dossier on DeGeorge, uncovering the previous three yacht losses, before moving on to compile a history—a catalog, really—of all DeGeorge’s known insurance claims.
They begin in 1970, with a Rolex he reported stolen from an unattended vehicle in Madrid and jewelry said to have disappeared from an unattended taxi in Sydney (for a total of $3,150). In 1971, he claimed his baggage had been taken from an unattended car in Barcelona ($20,000). In 1974, he reported the theft of his sports coupe, a Jensen Interceptor (unknown amount). In 1981, 1990, and 1991, he claimed more lost luggage during airline travel abroad (totaling $29,000), then in May 1992 the theft of his collection of more than 30 paintings by Peter Max, artwork he had obtained in lieu of legal fees (for a grand total of $700, 000, paid after DeGeorge’s customary threat of a bad-faith lawsuit).
Court records also state that DeGeorge filed 29 separate medical disability claims between 1976 and 1990. Some of his claims stem from a disabling head injury he reportedly suffered in a car crash while honeymooning with his first wife in Greece. In 1990, he sought $11,000 a month from Monarch Insurance Company to cover medical expenses and loss of earnings; the company sued to rescind its policy after accusing DeGeorge of misrepresentations on his application. When DeGeorge fired back with a counterclaim for bad faith, negligence, and fraud, Monarch settled for $550,000. DeGeorge proudly points out this is the full value of the five-year policy—which breaks down to almost $9,200 a month, quite close to his initial demand.
“He has an insurance-loss history second to none,” says Lerner, who discovered more than $2.2 million in claims paid to DeGeorge over the years. When he reported his findings to Cigna, he was told to “do whatever it takes” to beat DeGeorge. Unlike every other insurance company DeGeorge had faced, Cigna would be the first to refuse to give in.
Lerner had hoped that the fact that the Principe had been recovered would make his case. But investigators found no physical evidence to challenge DeGeorge’s story—no power tools or receipts for them, no incriminating documents to disprove Libovich’s existence or the details of DeGeorge’s story.
There was one new wrinkle, however, and though it didn’t prove DeGeorge had tried to sink his own yacht, it did raise serious questions: DeGeorge had purchased the yacht from shipbuilder Azimut not for the $3.7 million he claimed when he applied for insurance but for only $1.9 million. Before the boat had left Azimut’s yard, it changed hands through a series of paper transactions orchestrated by DeGeorge involving shell corporations he controlled, ending with Polaris Pictures. In the process, the boat’s value was inflated to $3.7 million—the price reported to Cigna—though no money ever changed hands between the shell corporations.
DeGeorge defends the series of transactions as legitimate business deals, and he insists the boat’s insured value was not inflated—$3.7 million was fair market value for the Principe, as confirmed by an appraisal. He says he simply got a good deal because Azimut needed to unload the boat after another buyer backed out.
DeGeorge also created a company called US Inbanco, which, like Polaris, shared an address with DeGeorge, court records state. Inbanco was represented to Cigna as the lender in the boat sale, but court records show the company had few assets and seemed to have little purpose other than taking part in the yacht transaction. But on paper Inbanco was, in insurance parlance, the “loss-payee”—just as a home mortgage lender is the loss-payee on a home that burns down through owner arson. So even if Cigna could prove DeGeorge scuttled the yacht, it would nonetheless owe Inbanco $3 million, the value of the loss-payee policy.
“It was ingenious,” Lerner says. “No matter where Cigna turned, we were still on the hook.”
It looked for a time like the case had stalled and that the insurance company might pay DeGeorge. Then an attorney who had worked on DeGeorge’s last yacht loss gave Lerner some advice: “Don’t follow the story. That’s what DeGeorge wants. He knows you can’t disprove his witnesses. You’ll lose, just like we did. Find another way.”
Find another way. Lerner went back to the law books and came up with a breakthrough: an archaic Latin principle of maritime law, uberrimae fidei. In modern terms, it means “utmost good faith,” something, Lerner says, that was in short supply in the case of the Principe di Pictor. The concept originated in 1688, when Lloyd’s of London was a coffeehouse on the Thames. The shipowners and skippers who gathered there would discuss the risks of their impending voyages and get lone-wolf insurers to write their names in a list under each ship and cargo manifest—to literally underwrite their journeys. The one rule governing these deals was simple: The captain and the shipowner had to volunteer “in utmost good faith” all information about potential risks to the voyage—prior accidents, a new skipper, changes in the value of the vessel, and its cargo. Any material omission would invalidate claims in the event of disaster. Basically, the agreement declared that underwriters were entitled to know what they were getting into. After more than 300 years, the principle still governs marine insurance, though it has become sufficiently obscure that the federal judge who would oversee DeGeorge’s lawsuit with Cigna couldn’t even pronounce it.
DeGeorge violated uberrimae fidei in every way imaginable, Lerner realized: He misrepresented the purchase price of the yacht. He didn’t inform Cigna he had fired the captain provided by the shipbuilder in favor of Libovich. He mentioned nothing of the three previous lost yachts and the related insurance claims, although Cigna’s applications specifically requested that information. Lerner says neither Cigna nor any other company would have insured him had he revealed his past.
The beauty of relying on uberrimae fidei was that Lerner didn’t have to prove DeGeorge tried to sink the yacht or committed insurance fraud. Indeed, if DeGeorge insisted Libovich cut the holes in the Principe’s hull, that was fine with Lerner. By professing he changed skippers without notifying Cigna, Lerner says, DeGeorge was admitting he violated uberrimae fidei. Changing skippers—particularly to one whose credentials were unknown—constituted a risk that Cigna hadn’t agreed to. Rather than trying to disprove DeGeorge’s story he was going to take him at his word and use it against him.
DeGeorge, who had been expecting a big check from Cigna, did not take it well when the company filed suit to rescind its policy on the Principe. “Dishonest,” “dishonorable,” “deceitful,” and “despicable” were some of the milder words he used in the briefs and flood of angry letters that followed. When the case came to trial in 1996 in a Los Angeles federal court, DeGeorge was a witness, not a defendant, because the insurance was in the name of Polaris Pictures, and the only question was whether the policy could be rescinded under uberrimae fidei. U.S. District Court Judge J. Spencer Letts, however, did little to disguise his belief that DeGeorge was the mastermind of an insurance fraud. He ruled for Cigna in an opinion that repeatedly refers to DeGeorge as “the lawyer conspirator.” Not only would DeGeorge receive no insurance payoff, the judge found he was the alter ego of Polaris and therefore liable for the $2.3 million in Cigna’s attorneys fees.
DeGeorge could have avoided all this if he had not, according to Lerner, refused a settlement offer at the beginning of the trial to simply walk away from the claim, each side bearing its own costs. “It was a big mistake,” Lerner says. “Toward the end, when the handwriting was on the wall, they came back and asked if the offer was still on the table. We said no. With a smile. I have to admit it was a very satisfying moment.”
It was more than that. Judge Letts was so outraged he referred the case to the Justice Department for criminal investigation.
Two years later, in 1998, a frightened 33-year-old cameraman from Long Island showed up at the U.S. Embassy in Barcelona. “I need to talk to someone about Rex DeGeorge,” Gabriel Falco said.
DeGeorge had acquired a new yacht, insured by a company in Greece, and was hinting that there was going to be another loss, Falco would later testify. Moreover, Falco said, while he was visiting DeGeorge on the yacht in a Barcelona marina, his old friend asked him to kill Judge Letts as well as Lerner and his partner Sands. When Falco refused, DeGeorge allegedly threatened him, too—which sent him running to the embassy.
Judge Letts was placed under protection, and FBI agents suggested that Lerner make sure no one was following him, that his firm look out for mail bombs, and that he consider buying himself a gun. “This was not presented to me as an idle threat,” Lerner recalls.
What had been a moribund criminal investigation begun at Judge Letts’s prodding suddenly had new life. Falco recanted his earlier testimony before Judge Letts and swore the Italians had been right the whole time: There was no Libovich. The sinking of the Principe had been a scam. Many of DeGeorge’s claims were scams, from his supposed medical conditions to the theft of the Peter Max paintings, Falco claimed.
“I live for insurance fraud,” Falco quoted DeGeorge as saying.
A sealed indictment against DeGeorge, Falco, and Paul Ebeling was handed down by a grand jury. With Falco turning state’s witness and pleading guilty to insurance fraud in exchange for probation, Ebeling, too, negotiated a deal, receiving an 18-month sentence in exchange for his testimony against his friend. Contradicting his earlier statements, Ebeling said the sinkings of the Principe and the Epinicia were staged to defraud DeGeorge’s insurers. DeGeorge was the pirate, according to Ebeling, and it was DeGeorge who allegedly boasted, “I can sink anything,” after Ebeling warned him about the Principe’s anti-sinking technology. All three men helped cut the holes in the boat with power tools, Ebeling said, which they threw overboard when they spotted the Zara on the horizon. While waiting for the cutter to arrive, Ebeling said, they hastily stuffed cushions and other buoyant items under the bridge so it would appear they tried to save the boat, and then DeGeorge briefed them on the Libovich story. As a memory trick, Falco would later say, DeGeorge assigned an actor to each of the three pirates; to describe Libovich, just think of Robert Redford. That way they would all remain consistent.
Falco’s and Ebeling’s testimonies were kept secret and the indictment was sealed while the authorities awaited DeGeorge’s return from Greece. The FBI arrested him at JFK Airport in New York as he stepped off a plane from Athens. “The irony is, I was so glad to be back, the first thing I did was grab two hot dogs in the airport,” DeGeorge says. “I just wanted to taste something American. And then they arrested me.”
In a criminal trial last year, DeGeorge stuck to his story about Libovich, accusing his friends of lying to protect themselves. During the trial he underwent heart surgery for a blocked artery and was in the hospital when the jury returned its verdict. He was convicted on 16 counts of conspiracy, mail fraud, wire fraud, and perjury. No charges had been brought against him for the alleged death threats. At sentencing, DeGeorge was less than contrite. “My losses, despite the innuendos, were investigated, and there was nothing wrong with them,” he said. “They happened. There are many, but it did happen to me.”
Judge Lourdes Baird, formerly the U.S. Attorney in Los Angeles, would have none of it. “Your conduct throughout has been arrogant, it’s been brazen, it’s been disingenuous,” she said. “You have still not accepted responsibility for this.” Baird sentenced him to seven and a half years in prison.
DeGeorge’s section of Taft prison is as minimum security as it gets—he says he could sneak off into the desert anytime he’d like. Three days a month, his wife, Kathryn, brings their four-year-old daughter for a family visit. His daughter can sit on his lap—but no hugging, no holding hands allowed. The child thinks he is staying in a hotel, but she cries when he can’t come home. If DeGeorge hides his bitterness behind a lawyerly calm, his wife wears it on her sleeve. “We’ve been raped,” she says, describing how she and her daughter are struggling financially, living in Sacramento near her parents. “These insurance companies pay you when your bathtub overflows, but when it’s something big, they bring out the big guns.”
DeGeorge has exhausted his appeals in the civil case—the Supreme Court declined to hear it—but he hasn’t paid Cigna a penny. He has declared bankruptcy and transferred assets, including his Mulholland mansion, which has since been sold, leaving little for Cigna to collect. When asked if he lost everything or managed to salt away some of his fortune, he smiles and says, “Let’s just say, God is great.”
DeGeorge spends about an hour a day working on the appeal of his criminal conviction; a private attorney is doing the bulk of the work, with oral arguments before the 9th Circuit Court of Appeals set for the summer. And when he wins a new trial, he says, he will have a new defense: Now he claims that he knew all along about uberrimae fidei and that his insurance policy would be worthless the moment he hired Libovich without telling Cigna. If the insurance policy was void at the time the Principe was scuttled and he knew it, then there could be no fraud, no criminal intent, no crime.
“I’m a smart lawyer, I knew,” he says. “And if I knew, what was my motive to commit fraud? None.”
Of course, this creates a bit of a problem for DeGeorge, given that he vigorously pursued an insurance claim he concedes was illegitimate (“Isn’t that an admission of fraud right there?” Lerner asks). But DeGeorge waves off such concerns. “What choice did I have? The yacht was a total loss. I knew there was no insurance, but I had to pursue the claim—I’m a lawyer. I had a client….End of story.”
Except it’s not the end of the story. DeGeorge is ebullient as he talks about his latest victory. Equitable Life Assurance and Paul Revere Insurance had been paying him $8,200 a month in disability payments since 1990 for the brain injury and a heart condition allegedly stemming from that honeymoon car accident. In 1999, after DeGeorge was indicted, the companies cut off his payments, claiming he was a fraud. “They thought I was wounded, that I’d be an easy target,” he says. “Not so.”
Although the insurance companies called Gabriel Falco to testify about how he watched DeGeorge do drugs, drink whole pots of coffee, wear parkas in hot weather, and employ other tactics to skew medical tests and fake his disabilities, a jury sided with DeGeorge, who had several respected doctors testify that his ailments were genuine. The jury ordered the insurance carriers to pay him a lump sum of $371,000 and to resume paying him $4,700 in monthly benefits—for the rest of DeGeorge’s life.
“It was the first fair trial I’ve received,” says DeGeorge. “But it won’t be the last.”
This feature appears in the July 2004 issue of Los Angeles magazine.