A Chicago based travel agent has been indicted for wire fraud after adding his customers tickets to a variety of Delta Air Lines SkyBonus accounts, skimming off 42,000,000 miles in a 13 months period.
The way this program works is that the companies SkyBonus number is entered in the reservation simultaneously with the frequent flyer number of the customer. Both parties will earn their respective credits after the flight.
What this travel agent allegedly did is that opened SkyBonus accounts for random companies and then entered the membership number into the reservations of his customers. He pocketed the points for these reservations – a whole 42 Million of them.
The New York Times reported about it yesterday.
Gennady Podolsky, a travel agent based in Chicago, was charged on Wednesday with 12 counts of wire fraud in connection with what prosecutors describe as a 13-month scheme in which he accrued 42 million Delta SkyBonus points, valued at more than $1.75 million.
SkyBonus points are earned through a corporate loyalty program through which companies can accrue points that can be redeemed for free flights and rewards from the airline. According to the indictment, filed on Wednesday in United States District Court for the Northern District of Georgia, Mr. Podolsky created a SkyBonus account for a corporation called RGI International with which he is not affiliated.
Mr. Podolsky, 43, would link flights that he booked for clients of Vega International Travel Services, where he worked as a travel agent, to RGI International’s SkyBonus account, allowing him to “fraudulently accrue” points, the indictment said.
“Mr. Podolsky’s conduct relating to that program was not fraudulent,” his lawyer, Seth D. Kirschenbaum, said in a statement, adding that “the suggestion that Mr. Podolsky’s conduct somehow disadvantaged his clients is equally unfounded.”
He also objected to the government’s portrayal of Delta as “a victim,” claiming that the airline “actually netted millions of dollars of profits” through its relationship with Mr. Podolsky. …
“We’re happy to see any kind of fraud indicted and continue to work with the F.B.I. and the U.S. Attorney’s Office to make sure this case is prosecuted to its fullest extent,” the airline said in an emailed statement on Friday.
Mr. Podolsky is accused of running the scheme from March 2014 to April 2015, during which time he was a managing partner and the lead travel agent at Vega International, according a news release from the office of United States Attorney Byung J. Pak.
You can also find a summary of this matter from the Justice Department.
I have mixed feelings about this case because a few things here don’t pass the smell test.
For one there is the valuation of the miles. The indictment values the 42 Million Miles at US$1.75 Million. Given the SkyMiles award pricing (high!) this is highly overvalued. They don’t call the program “SkyPesos” for nothing. This is a fantasy valuation!
The customer wasn’t impacted in this case in any way. The passenger was still able to earn the miles for all flight activity and I’m positive the defendant didn’t delete a SkyBonus number if there was one provided for the actual company, that would have been mentioned in the reports.
The loyalty systems are very receptive to (semi-) fraudulent activity if one really wants to, both from the inside and outside. I can say from first hand experience that it’s very common to open SkyBonus accounts for companies and employees that are solely fictitious. The internet is full with cases where SkyBonus and similar “Business Bonus” accounts have been closed by airlines for violating the T&C, namely that it’s either not a real company or the tickets credited were not from actual employees.
I guess what we can take from this case is that travel agencies provide ample room for illicit activity surrounding travel products and that one should keep a reservation / PNR as confidential as possible. Yet we see everyday that people post their information publicly on Twitter etc, even tweet their entire reservation to airlines in an attempt to complain – for the whole world to see!
While the defendant is the perpetrator of this scheme, I see the main fault with the airline. Their system is simply not safe and rather inviting to illegitimate activity. There should be proper security mechanisms in place when it comes to earning and redeeming of bonus miles. In fact there is little to no security whatsoever. You can open and attach a bonus account to any ticket as long as you know the PNR, after which it’s easy to redeem the miles.
Airlines always emphasize that their miles have “no cash value” yet in this case they apply some fantasy amount. This should be a civil matter between Delta and the defendant, not a criminal case involving the FBI. It’s more than questionable how the U.S. government assumes authority over such cases and criminalizes them, especially when it comes to the “Wire Fraud” statute under 18 U.S.C. § 1343, which in this day and age can apply to pretty much anything. There was plenty of criminal energy and creativity by the defendant but the airlines need to seriously beef up their security when it comes to passengers reservation records and these free floating, unvalidated bonus programs.