The case against fraudsters. (An Advertising Supplement to the Los Angeles Business Journal).

The sinking of the Principe di Pictor, a luxury yacht, on its maiden voyage in the Mediterranean, transformed us from a maritime, transportation and insurance law firm into one that specializes in fraud litigation as well. Once you are exposed to fraud it is very difficult to wash it out of your system, for several compelling reasons.

Most fraudsters, those who "live for fraud," are compelling characters who combine the extravagant charm of a movie star with the sinister deceit of a gangster. They can be fun one moment and vicious the next.

When you are dealing with a fraudster you must constantly go against your instincts, and disregard everything he says, no matter how insignificant it might seem, because you are dealing with the criminal mind and the criminal mind does not acknowledge the truth. Everything a fraudster tells you must be considered a lie.

Fraud cases can be dangerous, since fraudsters will do anything to ensure that the scam plays out. They often run a parallel course between the civil and criminal justice systems, forcing you to provide information to law enforcement while litigating a civil case.

Fraudsters love the game as much as the payout. Although money is involved in most frauds, fraudsters love the manipulation as much as the cash. Most fraudsters view the money as icing on the cake or as payment for concocting such a brilliant scheme.

When you combine these reasons with the fact that everyone loves a good con, you have some very intriguing cases, and you are hooked.

In the case of the sinking of the Principe di Pictor, the fraudster was Rex K. DeGeorge, a prominent Beverly Hills lawyer and fledgling movie producer. The LA Times, after chronicling DeGeorge's diverse and extensive loss history, called him the "King of Insurance Fraud," and documented his extravagant lifestyle of 14 Ferraris, villas, jewels and art.

DeGeorge started the $3.75 million insurance claim on the Principe with a skillfully drafted letter that asked: "Why haven't you responded to our first letter," putting our client immediately on the defensive. His angry letter writing campaign, demanding immediate payment on the claim and threatening lawsuits and punitive damages, followed.

The story being told to explain the three man-made holes in the hull of the Principe was also suspicious, and so implausible that our client's instinct was to deny the claim outright. This would have been exactly what DeGeorge wanted, since it would have ensnared our client in his trap; the facts of the loss trap.

In each of DeGeorge's three prior vessel losses, implausible stories had also been told, forcing the insurers to deny the claims based on their suspicions that the stories were false. Once the claims got down the road, however, and the insurers realized that they had only their suspicions, the insurers were trapped and forced to pay large settlements.

To explain the sinking of the Principe, which DeGeorge had bought for $1.9 million and, through deception, had insured for $3.75 million, DeGeorge claimed that a Yugoslavian submarine Captain named Andre Libovich, whom he had met at a coffee bar in Naples, had duped him into thinking that he was an applicant for Captain. Libovich then convinced DeGeorge that he and his two men should be allowed to have a test drive of the yacht in order to establish their credentials. Once at sea, however, Libovich and his men became increasingly belligerent to the point where they drew guns, locked DeGeorge and his two cohorts in the ship's cabins and proceeded to cut holes in the boat in order to scuttle it. As the Principe slowly sank, Libovich and his men jumped onto a black cigarette speedboat that had pulled up alongside.

The Libovich story, we now know, was false. As the Italian rescue ship unexpectedly approached the sinking Principe, DeGeorge fabricated the story. He told his two cohorts to describe Libovich as they would Robert Redford, the actor. In real time, however, we knew only that the story was bizarre and that DeGeorge and his two cohorts were willing to testify to it. We also knew about the facts of the loss trap.

We therefore started comparing the information being disclosed by DeGeorge in his letters, with the information that had been disclosed when he applied for the insurance. We noticed that material facts had been concealed and, relying on the ancient maritime doctrine, of utmost good faith, filed a lawsuit for rescission in federal court. The civil case would focus on the exchange of information at the time the insurance policy was written rather than the facts of the loss.

The case ultimately went to trial before Federal Judge Letts, who ruled in our client's favor and rescinded the policy. He said that the Libovich story was "the single most incredible story I have ever heard from the stand" and described the scam as a "very sophisticated fraud." He was also so outraged by DeGeorge's loss history and apparent willingness to lie under oath, that he referred the case to the US Attorney's office for prosecution. After the civil case was upheld on appeal, the FBI visited my office to advise me that DeGeorge had attempted to pay someone to have me killed:

In March 2002, over nine years from the attempted scuttling, the jury in the criminal case returned guilty verdicts on all 16 counts. DeGeorge was not present, having checked into the hospital that morning complaining of chest pains. He was present for his sentencing, however, and listened defiantly as Federal Judge Baird imposed a 7 1/2 year sentence upon him and ordered him to pay $2.8 million in restitution to our client.

Even though DeGeorge is in federal prison today, and his law license has been suspended, the most stinging part of Judge Baird's sentence is that he must receive court approval before filing any more insurance claims.

Neil S. Lerner is a partner with Sands Lerner, the law firm that represented the insurer in the DeGeorge case. He has added fraud litigation to his areas of practice.