World Class Network, Inc., a multi-level marketer of travel agent credentials and a work- at-home travel agency business opportunity, which was charged by the Federal Trade Commis sion in a March 1997 crackdown on travel-related fraud, has agreed along with four individual defendants in the case to pay more than $3 million into a consumer redress fund. The money will be used to provide refunds to many of the more than 51,000 consumers who purchased World Class Network’s travel tutorial. The settlement agreement the FTC has obtained from these defendants also bars them from operating any type of pyramid scheme, or any multi-level marketing scheme for travel-related business opportunities, in the future. In connection with future direct sales of any travel tutorials, World Class Network is required to provide a full refund policy and a 90-day "cooling off" period. In addition, World Class Network is required to review any advertising disseminated by its independent distributors to ensure that it does not violate any of the terms of the settlement, which bars misrepresentations of earnings claims and the travel benefits, such as discounts and upgrades, that result from joining the World Class Network.
On Feb. 28, the FTC filed charges against World Class Network, Inc. (WCN), of Irvine, California; World Class Travel, L.L.C., of Calabasas, California; and the following officers: WCN Board Chairman Daniel R. Dimacale and Secretary Denise L. Dimacale, both of Newport Beach; WCN Executive Vice President and CFO Robert C.K. Lee, Mission Viejo; WCN President and CEO Howard K. Cooper, of Woodland Hills; and World Class Travel Chairman and CEO Jerome L. Goldberg, of Oxnard. A judge immediately issued a temporary restraining order halting the challenged practices, freezing the defendants’ assets, and placing the companies into receivership. The settlements announced today are with WCN, the Dimacales, Lee and Cooper. Charges against World Class Travel and Goldberg are still pending. The charges were filed as part of "Operation Trip-Up," a federal-state campaign involving the FTC and 12 state Attorneys General targeting a wide range of travel-related frauds, and netting 36 law enforcement actions in all. (See the FTC’s March 13, 1997 news release and related consumer education materials regarding travel fraud at the FTC’s website at www.ftc.gov/opa/9703/tripup1.htm. The consumer materials were produced in cooperation with the American Society of Travel Agents.)
In its court complaint in the WCN case, the FTC alleged that the defendants offered a travel tutorial kit that purportedly would allow purchasers to receive the professional courtesy discounts and upgrades traditionally available to travel agents on their own travel accommoda tions, and to operate and achieve specified earnings in an at-home travel business. Distributors also could receive commissions by recruiting new distributors and reselling the tutorial to these recruits. In fact, the FTC charged, purchasers could not obtain the promised discounts and upgrades for personal travel because many travel industry service providers did not recognize World Class Network’s proprietary I.D. and the travel tutorials were inadequate to allow purchasers to open and operate a functioning business. As to earnings claims, World Class Network’s own records indicate that only about 4 percent of the more than 51,000 purchasers earned more than $1,000 in commissions in 1996, and that more than 35,000 of the network members received no commissions at all last year.
The FTC said that while the settlement would allow WCN to remain in business, it contains provisions that ensure that the challenged deceptive practices are halted. The FTC also said that it worked closely with the California Attorney General’s office, which is expected to announce a separate settlement shortly. The FTC’s settlement has been submitted to the court and requires the court’s approval to become binding. The settlement would:
- require the settling defendants to pay the following amounts into the consumer redress fund: WCN, $800,000; Daniel and Denise Dimacale, $1,702,000; Lee, $450,000; Cooper, $50,000 (consumers due refunds will be notified at a later date);
- prohibit these defendants from engaging in any pyramid schemes, which the settlement defines as a program where a distributor’s income is derived from commissions for recruiting additional distributors;
- prohibit them from selling or participating in the sale of any travel-related business opportunity by means of a multi-level marketing program, which the settlement defines as a program whereby distributors’ income is derived primarily from the sale of goods or services -- by the distributors and their recruits -- rather than from commissions for recruitment (the settlement would permit WCN to sell a single revised travel tutorial kit to each current network member, and the defendants and their distributors to sell revised tutorials to new purchasers, but would bar defendants and their independent distributors from selling multiple tutorials to a single individual or creating uplines or downlines for the payment of commissions on tutorial sales);
- require them to review all distributors’ advertisements before allowing the ads to run;
- require these defendants to implement a refund program for future purchasers of travel tutorials, under which the defendants will refund consumers 100 percent of the purchase price within 45 days of the date of purchase, and 90 percent within 46 to 90 days of the purchase date;
- require these defendants to implement a 90 day "cooling off" period for the sale of any travel tutorial kits, under which the purchaser cannot become a travel agent or a distri butor for 90 days (the FTC said this provision will allow purchasers time to become acquainted with the product before committing to the network and, in conjunction with the refund policy, will bar high pressure sales tactics);
- prohibit the settling defendants from selling their "Travel Business System" tutorial in its present or previous forms;
- prohibit them from misrepresenting the potential earnings, sales, discounts, upgrades or benefits that a consumer can obtain, that the defendants have received the approval or endorsement of the Federal Trade Commission, or any other material fact;
- require them to disclose, in connection with any earnings claims they make, the number of purchasers who make at least the amount claimed and the percentage of total purchasers who earn that amount;
- require these defendants to obtain from each purchaser a written verification form, which the defendants must review before depositing any of the purchaser’s money, to ensure that none of the prohibited claims were made (if defendants do not receive a completed verification form from a consumer, the purchase price must be refunded);
- require these defendants to institute a monitoring program to ensure that their distributors are complying with the settlement provisions, and to investigate and resolve promptly all consumer complaints; and
- require these defendants to send a letter describing the misrepresentations and practices prohibited by the settlement agreement and a copy of the conduct provisions of the settlement agreement to each of the more than 51,000 World Class Network distributors.
The FTC vote to approve the settlement for filing in court was 5-0. It was filed this morning in U.S. District Court for the Central District of California, in Los Angeles.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the proposed settlement are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. X970031)
(Civil Action No. SACV-97-162-AHS (EEx))
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