TravelMax Closes Offices, Attempts to Raise Capital

TravelMax International Inc., one of a fast-growing but controversial new breed of travel agent networks, has locked its offices, laid off employees and shut down its telephone reservation system as it attempts to raise new capital to keep operating.

The multilevel marketing company, which trains home-based agents to sell travel and recruit new members, furloughed more than 100 workers from its headquarters this week because it can’t meet future payrolls, according to Richard Marshack, an Orange County attorney hired to help revive the struggling firm.

Marshack said the cash crunch is the result of the fledgling company’s rapid growth, which has overwhelmed the firm’s in-house reservation system. Founded in 1995, TravelMax is estimated to have signed up as many as 30,000 independent agents nationwide, who earn commissions by booking business through the TravelMax network.

“We had more incoming phone calls than we could handle,” Marshack said. “The system couldn’t keep up with demand.”

Marshack said current management has been meeting with potential investors in hopes of securing a quick capital infusion. The company’s market value has plunged since last August, when TravelMax stock reached a 52-week high of $17 a share. The stock closed at 87.5 cents a share on Thursday, down 6.25 cents, in over-the-counter trading.

TravelMax is part of a burgeoning do-it-yourself movement that is challenging traditional full-service travel agents and changing the way that airline tickets, cruises and hotel rooms are sold.

But the fast-growing companies have generated plenty of controversy--as well as scrutiny by state and federal authorities.

Last year, the state of Kentucky filed suit against TravelMax, alleging the firm functions as an illegal pyramid scheme. That suit is still pending, according to Jennifer Schaaf, spokeswoman for the Kentucky attorney general’s office.

“We think that most of the profits generated come through the recruitment of people, not the sale of products,” Schaaf said. “TravelMax is operating a pyramid scheme.”

TravelMax officials have denied those allegations.

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Other Orange County travel agent networks have likewise been targeted by regulators and law enforcement agencies.

As part of a nationwide crackdown on alleged travel fraud dubbed “Operation Trip-Up”, the California attorney general last month filed suit against Nu-Concepts in Travel Inc. and its Jetaway Travel Corp. ticketing subsidiary. The state alleges 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.

A similar action in March by the state and the Federal Trade Commission shut down World Class Network, another Irvine-based multilevel travel agent network. Regulators have accused the firm of using deceptive tactics to sell training kits to would-be travel agents. The company currently is under control of a court-appointed receiver. Its owners deny the allegations and are battling in court to regain control of the company.

TravelMax was not targeted in those recent crackdowns.

Marshack said TravelMax management will need to move quickly to secure new investors or risk defection by its independent sales agents, whose travel sales have been severely curtailed by the layoff of the in-house reservation staff.

But key field representatives for TravelMax have been meeting with management this week and are confident that new capital will be found, according to Bill Hudak, a Boston-based independent agent.

He says that some agents are continuing to book travel using an online reservation system.

“There is tremendous support for the company among the reps in the field,” Hudak said. “We’re going to be right back on track very soon.”