(CN) - Four members of an insolvent luxury travel club lost their bid to recover the hundreds of thousands of dollars they paid to join the club before it went under. A federal judge in Chicago ruled that Abercrombie & Kent didn't violate securities laws by issuing "member bonds" in exchange for membership deposits ranging from $392,000 to $450,000.
These deposits gave members access to luxury resorts in cities across the world, including London, Paris, New York, Vail, Tuscany and Maui.
Plaintiffs Donald W. Glazer, Kevin R. McClellan, Daniel L. Mosley and Evan A. Stein each had memberships in Abercrombie & Kent's Distinctive Retreats.
The bond document stated that the club would return the deposit if the member kept the bond for an additional 30 years. If members chose to resign from the club early, they would get their money back, plus 40 percent of the increase in the value of their memberships.
Two of the plaintiffs received a $25,000 credit after 18 months.
When the club filed for bankruptcy, none of the four members was able to get a refund. They sued Abercrombie & Kent and Geoffrey Kent for alleged securities fraud, as Distinctive Retreats didn't have the assets to repay membership fees.
U.S. District Judge George Lindberg dismissed the claim, determining that the club memberships and bonds did not qualify as securities.
The plaintiffs never specified the kind of securities the member bonds were, but argued that they were nonetheless securities. Lindberg warned that the "bond" label "is not of itself sufficient to invoke the coverage of the [Exchange Act]."
He said the memberships and bonds did not meet the "standard definition of a bond" for bond securities.
According to Lindberg, they were consumer purchases with no public market, could only be resold to the club or passed down through inheritance, and were specifically repudiated as profitable investments in the membership documents.
The judge declined to exercise jurisdiction over the plaintiffs' remaining state law claims alleging fraud, negligent misrepresentation, Consumer Protection Act violations and breach of guaranty. He said the plaintiffs can litigate these claims in state court.
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