Centralia Tour Operator Under State Financial Investigation

A Centralia tour operator under state investigation after being accused of ripping off elderly clients, investors and employees — including many senior citizens who had purchased travel insurance — appeared in U.S. Bankruptcy Court Thursday. 

The court allowed Discovery Tours, which specializes in vacation tours and day trips for people over 50, to continue operations for another six weeks, until its next two hearings in May.

The Washington State Department of Financial Institutions, which enforces the state’s securities code and aims to protect consumers from fraud, confirmed that it has had an open investigation on Discovery Tours since 2009.

Suzanne Sarason, the department’s securities division chief, said they are looking into what Discovery told investors and matching those statements to the facts to see if a violation has occurred.

Sarason said she expects a determination in the next few months, at which time the department might assess fines and order Discovery to repay investors.

“But most of the time with these things, there’s little money left that could be given back,” she said.

Discovery filed for Chapter 11 bankruptcy for the second time on Jan. 27. 

A judge dismissed Discovery’s earlier bankruptcy case on Jan. 11 because the company failed to hire an attorney. 

The court has since consolidated the two bankruptcy cases, which include 850 potential creditors. 

“What is unusual is how many creditors there are and that they’re senior citizens,” said Daniel J. Bugbee, the attorney representing four of the larger creditors. “Most people are owed tens of thousands.”

The company’s CEO Melody Miranda declined to comment and her Olympia-based attorney, Brian L. Budsberg, did not return calls from The Chronicle Friday. 

Centralia resident Pauline Clark attended the March 6 bankruptcy hearing in Tacoma, along with more than 20 other creditors. 

During the hearing, Clark distributed copies of a letter from her travel insurance company to the attorneys involved in the proceedings. 

“I think I caused an uproar,” the 75-year-old said.

Clark said she paid Discovery more than $5,000 for a cruise to Hawaii from Vancouver, B.C., last year. But, just a week before the trip set to begin Sept. 14, Discovery canceled the trip without offering a reason or a refund, Clark said. 

Clark had travel insurance, which she purchased for $472 from Trip Mate Inc. to cover the cruise. But when she submitted a claim, the insurer responded with a letter stating that Discovery had canceled her policy.

“While we note a policy was purchased to insure those dates of travel, a request was received from your travel agent (Discovery) on Sept. 11, 2012 advising you were to receive a full refund and therefore requesting that the policy be canceled,” the letter from Trip Mate Inc. dated Dec. 27 stated.

Still, Clark said, she has not received a refund from Discovery. 

“We were just ticked,” Clark said. “I don’t know how people can cancel someone else’s insurance.”

Trip Mate Inc. did refund the $472 for the insurance policy, but did nothing to help Clark get refunded for the trip she had insured. Clark also tried to gain reimbursement through the credit card company she used for payment, but because she paid for the trip so far in advance, the company couldn’t help her either.

“We’re not the only ones,” Clark said. “There’s an awful lot of them that it was a hardship coming up with the money.”

Another Centralia resident, Michelle Gellings, said Discovery still owes her more than $3,000 for the same Hawaii cruise.

The 62-year-old said Discovery pressured her into paying off the trip five months ahead of the due date, telling her the company needed the funds to secure reservations on the ship. After Discovery canceled just days ahead of departure, Gellings contacted Royal Caribbean Cruises to see if Discovery had ever booked her party on the ship.

“Our records indicate that there was never a reservation made in your name with the company,” a December letter from Royal Caribbean stated.

“It’s fraud,” Gellings said. “We were devastated.”

Consumer complaints like Gellings’ continue to pile up, with a number of customers reporting that the business took their money, canceled trips and didn’t provide refunds.

The state Attorney General’s Consumer Protection Division has received more than 80 complaints about Discovery since 2010. Additionally, the Better Business Bureau has received over 20 complaints against the company, citing issues with refunds, billing and business practices.

The company was soliciting unpaid or tips-only “volunteer” employees, a practice illegal under Washington law, according representatives at the state Department of Labor and Industries.

In December, the company was asking its elderly clients for cash donations to continue doing business, despite struggling financially.

Initially, Miranda said previously, her business’s reduced cash flow was the result of a large embezzlement of funds by a former employee.

After the embezzlement accusations, Miranda did report a possible theft to the Lewis County Sheriff's Office on Nov. 15. But she told the officer she was not sure if money was actually missing, how much it was, if it had been misplaced or if an employee had made an error, according to the police report.

Additionally, Miranda told the officer that she does not check monthly records and does not know how to use the company’s bookkeeping system. She said multiple employees pay various accounts but accused a former staffer of four years, of embezzlement.

Debts to unpaid lenders remain.

Dale Lund, of Onalaska, said Discovery owes him more than $9,000 on several investments he made with the company, which date back to 2006. 

“They’re just rotten fiscal managers,” he said. “Just stupid.”

Lund said he filed a claim with the bankruptcy court after not receiving a payment from Discovery since June of 2012. Per his agreement with the company, Lund said, he should be receiving payments every other month.

Discovery’s next two bankruptcy hearings will take place on May 16. 

“We’re hoping there’s going to be a recovery for the creditors,” said Bugbee, the Seattle-based attorney representing some of the creditors.

Following the bankruptcy proceedings, Gellings, Clark and several other creditors said they may bring a civil suit against Discovery. 

“We’re not going to let these people think we’re broken down enough to give up,” Gellings said.

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Amy Nile: (360) 807-8235

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