Man Is Guilty in Sinking of Yacht

A Beverly Hills lawyer who claimed that his luxury yacht was seized and scuttled by drug runners on its maiden voyage off the coast of Italy was convicted Friday of insurance fraud.

A Los Angeles federal court jury found that Rex K. DeGeorge concocted the tale of piracy on the high seas in order to bilk the vessel’s insurance carrier out of $3.5 million.

DeGeorge was not in court when the jury returned its guilty verdicts on all 16 criminal counts against him. A defense lawyer told U.S. District Judge Lourdes G. Baird that the 65-year-old defendant was undergoing surgery to clear a clogged coronary artery.

DeGeorge, who remains free on $700,000 bond, is facing a maximum of 80 years in prison when he is sentenced May 13.

“The greatest insurance scam artist in the history of California has been found guilty. It’s a good day,” said Neil Lerner, an insurance company lawyer who won a federal civil action against DeGeorge in connection with the yacht’s sinking.

DeGeorge has a history of losing yachts on the open seas and then collecting on the insurance.

“I think the jury just couldn’t get past the fact of the prior losses,” defense attorney Mark Geragos said after the verdict. “That was a hump that we just couldn’t get over.”

The criminal case against DeGeorge dates from 1992, when he bought the Principe di Pictor, a top-of-the-line 76-foot motor yacht, for $1.9 million in cash from an Italian shipbuilder.

Before taking out insurance on the vessel, prosecutors alleged, DeGeorge orchestrated a series of sham financial transactions that inflated the boat’s value to $3.5 million and concealed his ownership.

Lerner, acting on behalf of Cigna Property and Casualty Co., investigated and unraveled the scheme. The insurance company refused to pay and got a federal judge to rescind the policy on grounds that DeGeorge had concealed his claims record.

The judge who tried the case was so outraged by what he heard that he referred the matter to the U.S. attorney’s office for a criminal investigation.

As a result, DeGeorge and two associates were indicted in 1999 on charges of trying to sink the yacht in order to collect on the inflated insurance policy.

Paul A. Ebeling, 62, of St. Louis, and Gabriel Falco, 36, of Amagansett, N.Y., later pleaded guilty in the case and testified against DeGeorge in the three-week trial.

Ebeling and Falco said they and DeGeorge used electric drills and saws to cut holes in the Principe’s fiberglass hull through the night of Nov. 7, 1992, in international waters about 50 miles from Naples.

But the plot went awry when an Italian coast guard cutter happened upon the yacht while it was still afloat the next morning.

Fearing that their scuttling efforts would be discovered, they tossed the power tools overboard and climbed into two dinghies as the cutter drew closer.

DeGeorge, meanwhile, sketched out a story to tell their rescuers. It went like this:

After taking delivery of the yacht in Viareggio, DeGeorge hired an Italian captain to sail the vessel south to Naples and then to Greece. When they reached Naples, the captain quit in a dispute over money.

Scrambling to find a replacement, they were befriended by a stranger who identified himself as Capt. Andrea Libovich, a former Russian submariner. He agreed to take them to Greece with the help of two crewmates.

While on the open seas, however, Libovich and his cohorts pulled guns on the Americans, locking them in a compartment below deck.

DeGeorge suggested that Libovich might be a member of a smuggling ring that wanted the yacht to run drugs into Italy. But when the Russian captain realized that the Principe wasn’t fast enough to outrun the Italian coast guard, he and his men tried to sink her by cutting holes in the hull.

The pirates fled in a black speedboat that picked them up and headed toward the Libyan coast before the Italian cutter arrived, according to DeGeorge.

From the outset, the Italian coast guard was suspicious about the Americans’ account, Assistant U.S. Atty. Eileen Decker told the Los Angeles jury.

Decker said the Americans had not bothered to use the Principe’s working radio transmitter to summon help after the pirates departed. Also, they didn’t seem particularly happy to see their rescuers, she said.

After towing the Principe back to port, Italian authorities placed DeGeorge, Ebeling and Falco under house arrest while investigators looked into their story.

“They found no evidence that Libovich ever existed,” Decker said.

But no charges were filed, and Italian authorities eventually let the Americans go.

Defense attorney Geragos said Italian authorities turned against DeGeorge only after receiving false information through a U.S. law enforcement attache in Rome that his client had been linked to an international drug-smuggling ring.

With DeGeorge as their principal target, he said, the Italians made no effort to look for Libovich.

“Libovich was real,” Geragos told the jury.

Moreover, he said, they tore apart the Principe “piece, by piece, by piece,” searching for drugs. The vessel had sustained about $50,000 damage at sea, and it was a total wreck by the time Italian drug agents finished with it, Geragos said. The vessel sank in port.

Geragos also challenged the prosecution’s claim that DeGeorge artificially inflated the Principe’s value when he arranged for it to be insured.

He said the vessel was originally listed for sale at $3.5 million, but that DeGeorge managed to get the price down to $1.9 million through skillful negotiations and by taking advantage of wild fluctuations in the Italian currency exchange rate.

DeGeorge did not take the stand during his trial.

Baird allowed prosecutors to mention DeGeorge’s previous yacht sinkings, but barred them from presenting details of those incidents because it might prejudice the jury.

According to civil court records not introduced in the trial, DeGeorge filed 32 property loss claims with various insurance carriers from 1976 to 1990, three of which were for the sinking of yachts he owned.

In 1970, he reported that his 43-foot yacht was stolen off the coast of Los Angeles by a couple of Peruvian coffee merchants who had expressed an interest in buying it. On an overnight test run, he said, the Peruvians drugged him and a companion. When the couple came to, DeGeorge said, they escaped in the yacht’s dinghy. Five days later, DeGeorge reported the loss to police. No trace was found of the yacht or the Peruvians. DeGeorge received $43,000, the full policy value, from Hartford Insurance Co.

In 1976, DeGeorge bought a 57-foot racing yacht and went sailing with Ebeling off the coast of Italy. About midnight on a starless, moonless night, he said, they struck “a low-profile dark object that was not visible.” DeGeorge and Ebeling escaped in a dinghy just before the vessel sank. Lloyds of London at first declined his claim but paid $194,000 after DeGeorge threatened to sue.

In 1983, DeGeorge collected $245,000 in insurance money after claiming that his 47-foot yacht was blown up in a failed assassination attempt off the Southern California coast. He told Fireman’s Fund that the attempt on his life grew out of a rancorous business lawsuit.

DeGeorge and his wife managed to escape in a dinghy before the yacht sank. He did not report the episode to law enforcement authorities when he got back to Marina del Rey, but four days later he filed an insurance claim.