YTB International faces a new legal challenge with the year-end filing of a class action lawsuit that alleges that YTB has “perpetrated an illegal pyramid scheme that represents one of largest fraud(s) in the history of the State of Illinois and the history of this nation.” The plaintiffs are requesting $ 100 million in actual and punitive damages and was filed U.S. District Court for the Southern District of Illinois, East St. Louis Division. The action has once again focused attention on multilevel marketing companies and industry standards.
“The defendant corporations have taken over half a billion dollars from their unsophisticated customers, selling them on the dream of cheap travel and million dollar pay-outs when the only way that Plaintiffs and their class could make a net profit was by recruiting others to join the illegal pyramid scheme,” the plaintiffs argue. “While over half of the its customers received no travel commissions at all, the directors of YTB International, Inc. each paid themselves multi-million dollar salaries while also siphoning tens of millions of dollars from their publicly traded corporation to privately owned corporations that they owned and controlled. Plaintiffs and their proposed class ask this Court to end Defendants’ massive fraud and to enter a judgment that compensates them for the hundreds of millions of dollars that Defendants swindled. Plaintiffs’ claims are typical to those of their proposed class because they arise out of Illinois common law.”
John Frenaye, a respected agent and critic of YTB’s performance, commented that the new filing is the third time that the Plaintiffs have attempted to get court approval of action against YTB. The court dismissed prior attempts over questions of the standing of the plaintiffs and what the judge said was sloppy legal work. Frenaye’s expert, if controversial analysis of YTB operations can be found online at http://notravelmlms.blogspot.com.
“This case involves the operation of an illegal pyramid sales scheme and chain referral sales technique in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The YTB Defendants have generated hundreds millions of dollars in net revenue—$162 million in 2008 alone—doing business as, or in affiliation with, entities commonly known as YourTravelBiz or YTB," the plaintiffs said. “YTB Defendants derived the lion's share of their revenue—$122 million in 2008 (75% or their net revenue)— by using Independent Marketing Representatives (IMRs) to recruit Referring Travel Agents (RTAs) to buy Online Travel Agencies (“OTAs”) from YTB Defendants. RTAs pay approximately $450 up-front and $50 per month thereafter to own and operate their OTAs. IMRs receive 'marketing commissions' if the persons they refer to YTB Defendants buy OTAs, regardless of whether the OTAs generate any commissions from the sale of travel.”
YTB has yet to comment publicly on the law suit. YTB also faces legal action by the State of Illinois Attorney General and last year lost a case -and was fined - by the Attorney General of California. Also of note is YTB's announced plan to launch a franchise operation and its 2009 annual report that is expected later this month.