Joseph Maloof, 68, and Norman Hansen, 55, operated JM Travel Selections, ITS International Tours and International Grand Tours in Santa Clara County, Deputy District Attorney Georg Behrens said.
ITS International Tours specialized in religiously oriented trips for elderly people and JM Travel Selections and International Grand Tours focused on educational tours for students and teachers, according to the district attorney's office.
The men violated California law when accepting payments customers made for upcoming trips, Behrens said. The law requires travel agents to maintain a trust account where they must hold funds received from customers for travel expenses such as air fair, cruise tickets or hotel stays in other countries.
Travel agents must retain funds in the trust account until used for travel plans or refunded to customers.
Maloof and Hansen, however, were using travelers' funds as a general business fund to pay for office upgrades, equipment and employee salaries, according to Behrens.
Behrens said the scheme is best described as "robbing Peter to pay Paul." A customer would pay the travel agents to plan a trip, the agents would spend the money on various general business matters, and then use money from a new customer to pay the existing customer's travel expenses.
Maloof and Hansen continued from 2003 to 2005 a cycle of spending customers' money and then repaying with other customers' money until the situation snow-balled out of control.
"It got worse and worse," Behrens said. "Numerous customers were left with nothing."
Some customers were days away from trips without any indication their money had been spent elsewhere when they were told the trips had been canceled. Customers were given excuses as to why their trips were canceled, Behrens said.
Behrens said there were hundreds of victims from across the country. The district attorney's office estimates the amount embezzled to be around $1.2 million.
Both Maloof and Hansen pleaded guilty in May to 13 felonies each, with the lead count of theft by embezzlement. The two also admitted an allegation they took more than $1 million.
Maloof had been previously convicted of a misdemeanor for a similar crime in 1989, Behrens said.
Judge Jerome Brock sentenced the men to 13 years in prison Wednesday at the end of a three-day sentencing hearing. They were also ordered to pay restitution to their victims.
"The amount of money is very high, the number of victims is very high, and, without speaking for Judge Brock, the level of deception is also something that influenced him," Behrens said of the sentence. "The victims certainly felt like they had been deceived, cheated and conned."
Maloof and Hansen, out of custody throughout the proceedings, were taken back into custody Wednesday to begin serving their sentences, Behrens said.