O.C. Travel Firm Agrees to Fine, Reimbursement

IRVINE — World Class Network Inc., an Irvine-based travel company shuttered in March as part of a nationwide crackdown on travel-related fraud, has agreed to abandon its multilevel tactics, pay a $500,000 fine and reimburse consumers more than $3 million.

The settlement with the Federal Trade Commission and the California attorney general’s office will allow the company to resume selling its travel agent tutorials, but not in the freewheeling style that triggered lawsuits from the two agencies accusing World Class of operating a pyramid scheme.

Monday’s settlement was hailed by state and local law enforcement officials as a major victory in their battle against travel fraud, estimated to cost American consumers more than $12 billion a year.

“This is a very strong resolution for consumers,” said Greg Staples, a Los Angeles attorney with the FTC. “We recovered the greatest amount of money we could and have obtained strong provisions to safeguard the public.”

Scott Warren, attorney for World Class, said his clients are pleased with Monday’s settlement, in which they admitted no wrongdoing. He described the deal as a “business decision” to avoid a protracted legal battle and get the operation up and running after being shut down for more than two months.

“They want to show they are legitimate and get back in business as soon as possible,” Warren said. “They are going to come out of it stronger than ever.”

World Class is one of a fast-growing and controversial new breed of travel agent networks that are changing the way airline tickets, cruises and hotel rooms are sold.

Such networks train armies of at-home travel agents to sell travel, recruit new members and earn commissions and perks like professional travel agents. But they have attracted the scrutiny of regulators and law enforcement officials in the process.

Monday’s settlement required World Class and its principals to pay $3 million immediately into a fund to reimburse many of the 51,000 consumers who purchased at-home travel agent kits and may be dissatisfied.

If claims exceed $3 million, state authorities will be able to garnish 10% of the company’s revenue for up to five years to satisfy purchasers’ demands.

In addition to the restitution, the company also has agreed to pay a civil fine of $500,000 to the state.

“We wanted to send a message that if you violate the law, you’re going to be required to pay a penalty on top of restitution,” said Jerry Smilowitz, deputy attorney general in Los Angeles.

The settlement also forces World Class to revise its travel tutorial kit and bans the company from using multilevel marketing methods to sell that product.

“This will prohibit them from forming another pyramid scheme where the bulk of income comes from recruitment instead of the sales of a product,” Staples said.

World Class must also establish a 90-day “cooling off” period to protect consumers from high-pressure sales tactics. During that time, new purchasers of the travel tutorial would be prohibited from becoming travel agents or distributors, giving them a chance to become familiar with the program before committing to the network.

The order also requires the company to give dissatisfied future customers their money back: 100% within 45 days of purchase, or 90% from 46 to 90 days after purchase.

As part a nationwide crackdown on travel fraud dubbed “Operation Trip-Up,” the FTC on Feb. 28 filed charges against World Class Network and its ticketing subsidiary, Calabasas-based World Class Travel LLC. Those companies, along with six top officers, were accused of misleading consumers and operating an illegal pyramid scheme.

Armed with a federal court order, the FTC shut down the companies in early March, froze their assets and named a court-appointed receiver to take over.

The court later relaxed that order, allowing World Class Travel to begin booking travel for World Class distributors.

Monday’s agreement does not apply to World Class Travel or to Jerome Goldberg, its chairman. State and federal charges against those defendants are still pending.

World Class wasn’t the only Orange County travel agent network to be charged with wrongdoing as part of Operation Trip-Up.

The California attorney general in March filed suit against Nu-Concepts in Travel Inc. and its Jetaway Travel Corp. ticketing subsidiary.

The state alleges that the Irvine firms violated numerous business laws and that Nu-Concepts is operating as an illegal “endless chain scheme.” The companies deny the allegations and continue to operate.