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People to People Parent Company Faces Securities Class Action

Complaint alleges overly optimistic outlook

By Jon Hood
ConsumerAffairs.com

July 16, 2009

People to People International An Investigative Report by Lisa Wade McCormick • Introduction • P2P: Ambassadors or Tourists? • P2P CEO "Mortified" • Parents Object to Student Lists • Not Everyone's Happy with People to People Trips • Fast Facts About People to People International • Update 12/06: It Happens Again • Deceased Cat Invited to be Student Ambassador --- News about P2P • People To People Leaders Allegedly Drank Beer While Student Was Dying • American Teens Go Missing on People to People Trips • People to People Parent Company Faces Securities Class Action • People to People Settles Wrongful Death Lawsuit • People to People Uses Dead Student's Name as Recruiting Tool • Feds Asked to Probe Student's Death on People to People Tour • Student 'Ambassador' Dies Neglected & Alone • People to People Invites Dead Girl ... Again • People to People Executive Sentenced to Prison • People to People "Clarifies" Its Invitation Policy • Student Travel Service Still Misleading Parents • Student Travel Service Agrees To Modify Marketing --- • Consumer Complaints • Consumer Compliments

The Ambassador's Group, which is affiliated with the controversial student-travel organization People to People, is facing a securities class action brought on behalf of its stockholders.

The complaint alleges that Ambassador's directors issued misleading and overly optimistic statements about the company's financial future. Among other things, the suit alleges that the directors failed to disclose a drop in travel participants and that fewer people who signed up for informational sessions went on to actually book trips. As a result of these deceptions, the stock was allegedly sold at artificially inflated prices.

Indeed, on October 22, 2007, when the directors announced financial results for the third quarter of that year, they conceded that the company's net enrolled participants for 2008 were 26,200, a sharp drop from the 37,300 that had signed up for the same period in 2007. The directors also admitted that this decrease would “negatively impact [Ambassador's] 2008 earnings.” After the announcement, Ambassador's Group stock fell 44%, to around $21 per share.

The complaint alleges violations of the Securities Exchange Act of 1934, the statute that regulates secondary trading of securities markets.

People to People, an organization that purportedly provides scholarships and travel opportunities to students, has spent the past several years embroiled in scandal.

People to People is known for sending travel invitations to long-dead children, upsetting parents and raising questions about the organization's recruiting and selection process. In 2006, Eugene and Margaret Beil received a letter inviting their daughter Katherine to join the group's trip to Europe. A nice gesture, except that Katherine died 14 years earlier, at 18 days of age. Just in case that wasn't egregious enough, in 2007 the organization invited Katherine on a trip to China during the summer of 2008. Katherine's mother Margaret said that the repeated promotions “just re-open the whole death all over again.”

Prison term

People to People further burnished its reputation in March 2007, when its former financial director was sentenced to 20 months in prison for stealing $148,144 from the organization. In a plea agreement, David E. Schlotzhauer conceded that, between 2001 and 2003, he embezzled money from People to People's checking account and used its credit card for personal expenses.

Perhaps most infamously, the company faced a wrongful death lawsuit after Tyler Hill, a 16-year old with diabetes and serious migraine headaches, died on People to People's excursion to Tokyo. Tyler's parents had worried about sending him on the trip in the first place, but were comforted by People to People's 24-hour medical response team and the organization's repeated assurances that Tyler would be in good hands.

Hill, an athletic history buff who had “dominated” his Type 1 diabetes from an early age, left the U.S. standing at 6'2” and 215 pounds. Two weeks later, he was braindead in a Tokyo hospital bead, his organs rotting and his eyes lifeless. His devastated parents decided to release him from life support. Although Hill wanted to be an organ donor, only his corneas were in good enough condition to be harvested.

Only later did the Hills learn the full details of their son's death. Tyler had become sick no less than three times before he was finally taken to a hospital. People to People refused Tyler's request to be taken to a hospital after he suffered altitude sickness during a hike up Mount Fuji. Only after he became unconscious did the leadership cave and give him the medical attention he desperately needed, court documents indicated.

The Hills and People to People settled the wrongful death action last month. The terms of the settlement are confidential and were not disclosed.

Not much change

The steady stream of scandal and litigation doesn't seem to have shamed People to People into cleaning up its act. ConsumerAffairs.com still receives a regular stream of complaints from consumers who say they have been misled by the organization. Many consumers pay People to People thousands of dollars to send their children on a trip, only to have their children's names removed from the travel list.

Colleen of Riverhead, NY, writes that, “We paid over $2,000 and assumed final payment could be made closer to the trip. We attended all of the delegation meetings including a service project. Approximately two weeks ago, the delegation leader called to tell me my daughter was taken off the roster.”

In a strikingly similar account, Susan of Mooreshead, NJ, writes, “Placed 400.00 deposit on trip, intending to charge the full payment balance on my credit card closer to departure date (8 months later). Days before I went to place the full payment, I was told that my daughter was no longer on the trip and that I was entitled to no refund (although I was originally told verbally by the company that I would be able to obtain a full refund minus a fee of less than 100.00).”

Invitations for non-existent children don't seem to have abated, either. Roberta of Brockton, MA, writes, “I received an invite for my daughter to participate in a 'one time only opportunity' to travel to Japan this summer. I don't have a daughter, nor a son. Where are these people getting these names and why are they allowed to continue this marketing ploy?”

People to People's website touts it as “the world’s most recognized and respected educational travel provider” and claims the organization was originally founded by President Dwight Eisenhower, though his name does not appear in any of the original incorporation documents.

As is customary for securities suit, the action was brought on behalf of the nominal company against its board of directors. The action covers anyone who purchased Ambassador's stock between February 8, 2007 and October 23, 2007.

Ambassador's, headquartered in Spokane, Washington, prides itself as a “socially conscious education company,” according to its website. In addition to People to People, the organization runs World Adventures Unlimited, another program that purportedly helps students travel abroad; and BookRags, a research site that provides study guides and other research tools.

More about People to People

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