The ongoing controversy over YTB took a new twist with an allegation that YTB’s release of information earlier this week may be in violation of Securities and Exchange Commission (SEC) rules on insider trading. John Frenaye, a respected agent and online blogger raised questions on his blog MLMs and Travel: A Bad Mix. YTB International is a publicly owned company and subject to SEC rules.
Frenaye questions center on YTB’s statement, quoted here in full):
“On April 6, 2009, YTB International, Inc. (the “Company”) circulated an internal communication to its employees and certain members of its sales force indicating that the Company reached a tentative settlement agreement with the State of California as of Monday, April 6, 2009 in connection with the civil action filed on August 4, 2008 against the Company and certain executive officers of the Company in the Superior Court of California, County of Los Angeles, by the California Attorney General.”
YTB reported this to the SEC on an 8K form.
Frenaye questions if the original statement was made by YTB to ward off alleged departures of YTB directors to a competing multilevel marketing firm. “Many have opined that the release of the memo was an effort to hold off the departing directors— there are reportedly 15 to 20 more departing in the next week to 10 days," he said. "It is quite possible. However, it may have been one of their biggest 'whoops' moves since it may technically be a violation of the Security Exchange Commission's regulations on insider trading.
“By releasing the memo of a tentative settlement only to 'certain' individuals a full 24 hours prior to announcing it to the public, YTB has dealt insider information. And if you look at the volume of their stock, you can see that there was significant action on it. The volume was nearly five times normal volume,” Frenaye reports.
“So, lets say that one of the Travel Pros at YTB got a hold of this information at 3:47 p.m. on Monday, April 6 when the stock was trading at 16 cents. Feeling that the stock could only go up on the public release of this news, a Travel Pro buys 20,000 shares for $3,200. Let's say that the Travel Pro passes the word onto everyone he knows who also buys up the shares because YTB has not released the information yet. It might draw five times the volume on Tuesday, April 7. Late in the day on April 7 at 3:17 p.m., YTB finally releases the information that they distributed in the memo 24 hours prior. Now that the information is public, the stock predictably went up. Now just suppose that a Travel Pro sold his 20,000 shares on April 8 when the stock was trading at 34 cents. He would walk out with $6,800. That is a 112 percebt gain in slightly more than 24 hours. And if the stock was held, it is likely to increase some more this week as the mystery surrounding the settlement fuels the market. To me, this seems like insider trading.”
Frenaye then quotes from SEC rules and urges readers to visit the SEC’s website.
Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.
Examples of insider trading cases that have been brought by the SEC are cases against:
* Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments
* Friends, business associates, family members, and other "tippees" of such officers, directors, and employees, who traded the securities after receiving such information
* Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded
* Government employees who learned of such information because of their employment by the government
* Other persons who misappropriated, and took advantage of, confidential information from their employers.
Frenaye, a long standing critic of multi-level marketing firms, ends by noting that the SEC “even has a 'bounty program' which offers cash rewards for tips that lead to convictions of insider trading," he said. "And it is even very simple for anyone to file a complaint right on their site. Technology is a great thing!”
Repeated attempts to contact YTB have failed and it is Travel Agent's understanding that YTB executives are embargoed from speaking with reporters. Travel agents are urged to visit YTB’s web site (www.ytb.com) and to read YTB’s Annual Report and filings with the SEC that are posted online. Visit (http://notravelmlms.blogspot.com) and www.ytb.com for additional details.