Class-Action Suit Calls YTB a Pyramid Scheme
The lawsuit follows years of allegations that YTB -- which sells home-based travel companies -- operates as a Ponzi scheme. In 2009, the California attorney general reached a settlement in which YTB agreed to pay $1 million in restitution to victims of the the company's so-called pyramid scheme in that state.
Last year the Illinois attorney general also sued YTB on allegations that the company's leaders unfairly profited on the recruitment fees of junior members.
The class action filed in Madison County this month launches similar allegations as those made by the attorneys general. St. Louis attorney Jay Kanzler, one of several lawyers bringing the class-action suit, tells Daily RFT that his team is representing more than a thousand alleged victims in the states of Illinois, Missouri, Utah and Georgia.
A federal judge dismissed the suit earlier on the argument that Illinois consumer-fraud laws don't apply to people living outside the state. While Kanzler and his team are appealing that ruling, the decision was made to file the case in Madison County Court -- the local jurisdiction for YTB.
The Madison Record this week details the following allegation brought forth in the lawsuit:
YTB has raked in hundreds of millions of dollars in revenue through the use of independent marketing representatives, who are the salespeople charged with recruiting others to buy the online travel agencies, the plaintiffs say. In fact, about 75 percent of the $162 million YTB earned in 2008 was derived from the independent marketing representatives, yet a majority of the representatives -- about 80 percent -- failed to earn a profit, according to the complaint.
Those people independent marketing representatives recruit to buy the online travel agencies are referred to as referring travel agents. To buy the online travel agencies, the referring travel agents are required to pay $450 up front, then to pay $50 each month to own and operate their online travel agency, the suit states.
YTB represents to its referring travel agents that the sale of online travel agencies is a business opportunity allowing them to become travel agents, the complaint says. However, plaintiffs claim they could not act as true travel agents -- they weren't allowed to sell travel packages, process payments for travel customers, issue travel tickets or other documents to customers or receive travel commissions. Instead, they acted as agents of travel agents, only referring travel customers to YTB.