LOS ANGELES—Two men are facing federal fraud charges alleging they ripped off unsuspecting travelers in an $8.5 million short-term rental scam involving properties in Southern California used to defraud customers of Airbnb and similar platforms, the U.S. Department of Justice (DOJ) announced Jan. 4.

Shray Goel, 35, of Miami, and Shaunik Raheja, 34, of Denver, were charged Wednesday in Los Angeles of running the alleged double-booking, bait-and-switch scheme which prosecutors say included discrimination against Black people, according to the DOJ.

Mr. Goel, Mr. Raheja, and others who worked with them are alleged to have owned and leased nearly 100 properties throughout the United States, including properties in Los Angeles, Malibu, and the Marina del Rey.

To carry out the scheme, the defendants double-booked properties through multiple listings of the same property on Airbnb and Vrbo, and then invented bogus last-minute excuses—often claiming plumbing problems—to cancel overbooked guests or trick them into moving to inferior replacement accommodations, federal prosecutors allege.

According to the indictment filed in Los Angeles federal court, members of the conspiracy profited from the scheme by running a secret bidding war for the properties—meaning they posted multiple listings for the same property at different prices for the same night, allowed the highest bidder to rent a particular property, and then cancelled or switched the lower-paying guests to a different property in the area.

The scheme also allegedly allowed Mr. Goel, Mr. Raheja, and accomplices to keep all of their properties in any given area at maximum capacity by using popular listings as bait to trick guests into booking those listings, and then steering overbooked guests at the last minute to less popular and open listings in the same area, court papers show.

“Goel and Raheja made decisions about which guests to keep and which to cancel based in part on their racial prejudices and discrimination,” the superseding indictment alleges.

The defendants, according to the indictment, tried to avoid renting to guests they perceived to be Black and in this way deprived them of their reservations and otherwise caused these guests to suffer monetary losses when their reservations were cancelled, according to the indictment.

“This deplorable scheme victimized thousands of consumers and families across the country, some of whom allegedly were discriminated against because of racial bias,” U.S. Attorney Martin Estrada said in a statement.

“Fueled by greed, the defendants deceived consumers about the locations and conditions of properties, canceled reservations to double-book properties and based on racial prejudices, and lied to victims leaving them scrambling to find last-minute replacement accommodations.

“The sheer number of victims is astonishing, as is the millions of dollars earned though the scheme that took advantage of the reputations of online rental platforms that offer a valuable service,” the statement reads.

The U.S. Department of Justice building in Washington on June 28, 2023. (Madalina Vasiliu/The Epoch Times)

The DOJ alleges that Mr. Goel, Mr. Raheja, and others used fake host names and, in certain instances, other people’s identities to list properties. They allegedly used the fake host accounts to conceal their own identities, to double-book properties, and to post fabricated positive reviews of their properties.

They were also allegedly using the fake host accounts to continue to list properties after they had been banned from Vrbo in 2015 because of repeated host cancellations and guest complaints.

To further the fraud, Mr. Goel and Mr. Raheja allegedly took steps to prevent negative reviews from affecting their business by falsely discrediting such reviews and otherwise trying to hide them from prospective future guests.

According to the updated indictment, the defendants posted bogus negative reviews about the guests who had panned their listings or called out the fraudulent and deceptive listing practices, and they would remove negatively reviewed listings and then re-list the properties using new listing identifiers, thereby purging the bad reviews from the properties.

“In 2018 and 2019, in the course of the scheme and in furtherance of it, defendants Goel and Raheja and others working with them and at their direction booked more than 10,000 reservations through Airbnb, receiving more than $7 million in payouts on those reservations; they booked additional and sometimes conflicting reservations through Vrbo and received more than $1.5 million in additional payouts from those reservations,” according to the indictment.

The superseding indictment charges Mr. Goel and Mr. Raheja with conspiracy to commit wire fraud and 13 counts of wire fraud. Mr. Goel is additionally charged with two counts of aggravated identity theft.

The conspiracy and wire fraud charges each carry a possible sentence of up to 20 years in federal prison. There is a two-year mandatory consecutive sentence for the aggravated identity theft counts, the DOJ noted.

Prosecutors said both Airbnb and Vrbo are cooperating with the government in the investigation.