YTB targeted in federal class action lawsuit

Steve Gonzalez Aug. 12, 2008, 1:00pm

Rex Carr

Two former agents for Wood River-based YTB International filed a federal class action complaint alleging YTB is an illegal pyramid scheme.

Faye Morrison and Kwame Thompson filed the class action Aug. 8, seeking to represent a putative class of over 1000 members, alleging YTB operates an illegal pyramid sales scheme and employs an illegal chain referral sales technique in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.

Morrison of St. Louis and Thompson of Atlanta, acted as both Independent Marketing Representatives (IMRs) and Referring Travel Agents (RTAs) for YTB.

They are seeking at least $100 million in damages on behalf of the putative class, arguing they will fairly and adequately protect the interests of the class as named representatives.

Morrison and Thompson have retained Rex Carr, Christian Montroy and Michael Marker of East St. Louis to represent them and the class. In addition, Jay Kanzler, Jr., and Brian Massimino of St. Louis will assist in representing the class.

Last week, Illinois Attorney General Lisa Madigan, a Democrat, announced that she was launching an investigation into YTB.

California Attorney General Jerry Brown also commenced an investigation after calling the company "a gigantic pyramid scheme." He sued YTB on Aug. 4, in an attempt to get restitution and fines of $15 million.

According to their Web site, YTB provides Internet-based travel booking services for travel agencies and home-based independent representatives in the United States, Puerto Rico, Bermuda, the Bahamas, the U.S. Virgin Islands, and Canada.

The company operates through three subsidiaries,, Inc., YTB Travel Network, Inc., and REZconnect Technologies, Inc.

According to the complaint, the majority, if not all RTAs, are IMRs, and vice versa.

Morrison and Thompson claim RTAs were required to pay a "one time license fee" of $449.95 and a "monthly license fee" of $49.95. IMRs did not pay any fees.

They claim until IMRs had recruited a specified amount of RTAs, they were required to purchase marketing materials from, Inc.

Morrison and Thompson claim RTAs were required to open travel websites which directed customers to buy travel through YTB Travel Network of Illinois, Inc. and were promised 60 percent of the commissions paid to YTB Travel Network of Illinois.

Morrison and Thompson claim IMRs earned money by recruiting RTAs and were paid at least $50 for each RTA enrolled.

They allege once an IMR personally enrolled four RTAs, that IMR would qualify for "overrides," which were optional additional direct sale commissions for each RTA enrolled.

According to Thompson and Morrison, IMRs received incentives from YTB to become RTAs themselves as well as monetary compensation. If an IMR was also an RTA, he could include himself as one of his 4 RTAs for the purpose of receiving "overrides."

Morrison and Thompson claim IMRs would also receive 50 percent of the travel commissions earned by RTAs they enrolled. If an IMR has "personally sponsored" three other IMRs and had a total of six RTAs, that IMR would earn $100 for each additional person enrolled as an RTA and $50 for every RTA enrolled by a sponsored IMR, they claim.

In addition, Morrison and Thompson claim after the first six RTAs, an IMR would receive a bonus of $1,000 each time they personally enrolled an additional 6 RTAs.

They allege YTB represented that IMRs could earn up to $31,000 in a year, not including "overrides" and matching bonuses, if an IMR and those IMRs he personally sponsored enrolled 100 RTAs.

According to the complaint, in 2007, class members paid over $103 million to YTB for Web sites and "licensing rights" while only receiving $13 million in travel commissions.

"In 2007, Defendants generated net revenue of over $141 million dollars," the complaint states. "Seventy three percent of Defendants' net revenue in 2007 was generated from the sale of websites, initial fees and monthly fees."

In addition, Morrison and Thompson allege 10 percent of YTB's net revenue in 2007 was generated through the sale to consumers of training and marketing materials and only 14 percent of net 2007 revenue was actually from travel sales.

"Sixty two percent of Plaintiffs' class failed to earn even a single commission on the sale of travel services, including their own personal travel," the complaint states.

Morrison and Thompson allege YTB's actions constituted an illegal chain referral sales technique in violation of the consumer fraud act.

According to the complaint, the questions of law and fact are common to the class and include:

  • Whether YTB's business constituted an illegal pyramid sales scheme;
  • Whether YTB's actions constituted an illegal chain referral sales technique;
  • Whether Plaintiffs suffered actual damages as a result of YTB's violations; and
  • Whether Plaintiffs' damages were proximately caused by YTB's violations.

    Morrison and Thompson claim that the Southern District of Illinois is the most desirable forum for their case because the large majority of YTB board members reside there.

    "Plaintiffs do not anticipate difficulties in managing a class action," the complaint states.

    "In comparison to individual actions by class members, a class action presents fewer management difficulties and provides the benefits of unitary adjudication, economies of scale and comprehensive supervision by a single court," the complaint said.

    The case has been assigned to U.S. District Judge G. Patrick Murphy.

    08 CV 565 GPM PMF

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