Two former YTB referring travel agents have filed a $100 million class action against YTB International, its subsidiaries and principals, charging that they operate an illegal pyramid scheme.
The lawsuit was filed only days after the state of California sued YTB; the state seeks $25 million in damages and restitution based on essentially the same allegations.
The plaintiffs in the newest case, filed in U.S. District Court, Southern District of Illinois in East St. Louis, said they were seeking to recover money "illegally obtained by defendants through their deceptive business practices."
Alleging that YTB's operations violated the Illinois Consumer Fraud and Deceptive Business Practices Act, the plaintiffs said they selected a federal court in Illinois in part because of its proximity to YTB's home base in Wood River, Ill.
The plaintiffs are Faye Morrison of St. Louis, Mo., and Kwame Thompson of Atlanta. Both had been referring travel agents for the YTB Travel Network as well as sales representatives for the company's marketing arm, YourTravelBiz.com.
One of their attorneys, Christian Montroy, said that because the lawsuit was so new, it was uncertain how many plaintiffs were in the class but "certainly more than 1,000." He said two more plaintiffs would be added to the suit in the next week.
The defendants are YTB International Inc. and its subsidiaries, YourTravelBiz.com, YTB Travel Network and Rezconnect Technologies, as well as YTB Travel Network of Illinois. The suit also named company executives J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen, Andrew Cauthen and Michael Brent.
Most revenue derives from websites
The plaintiffs told the district court in Illinois that the YTB businesses "purport to sell travel services, but their business is primarily based upon the inducement of additional persons to serve as 'travel agents.'"
They pointed to 2007 filings showing that only 14.5% of YTB's net revenues had come from selling travel; 73% had come from the sale of websites, monthly fees and other fees and another 10% from the sale of training and marketing materials.
Most YTB income came from RTAs, who pay $449.95 to sign on and a $49.95 monthly fee for a dedicated website. There is no initial cost for sales reps, whose role is to sign on RTAs, but the court papers said the reps are required to buy marketing materials from YourTravelBiz.com.
YTB is a multilevel marketing operation. The plaintiffs described the rewards offered to sales reps, based on their own sales and sales by those they bring to the organization. The vast majority of the 139,000 RTAs also are among YTB's 341,000 sales reps.
As for YTB's technology subsidiary, Rezconnect Technologies, the plaintiffs said RTAs were required to use its services, "including but not limited to" the websites that RTAs pay for. Rezconnect, based in Englewood Cliffs, N.J., is headed by Brent.
The court papers said the three subsidiaries "appear to have independent purposes and functions, [but] these legal fictions operate as a single unit."
The Rezconnect business includes a small operating division, Travel Network, with 165 franchised locations. Betty Krystyniak, its executive vice president, said events surrounding YTB have had no effect on the group's relationship with its suppliers: "We operate completely independently" of YTB and work only with "absolutely experienced agents."
In a statement filed with the Securities and Exchange Commission last week, YTB advised of the Illinois litigation and said it believed it "has meritorious defenses and intends to vigorously defend the case." Sorensen, CEO of YTB Travel Network, declined to make additional comments.
Mark Pestronk, a lawyer and Travel Weekly's Legal Briefs columnist, said he expected plaintiffs' lawyers to focus entirely on the pyramid scheme aspect because it is the largest part of the business, "the easiest to prosecute, and there are precedents."