As part of its recent settlement with the California Attorney General and a stipulated agreement with the Los Angeles Superior Court, YTB International will face sharp restrictions on its marketing of travel websites. In a report to the Securities Exchange Commission (SEC), YTB offered its list of restrictions that many believe will inhibit YTB’s ability to market and promote travel websites. June 1 is the trigger date for compliance.
On May 14, 2009, YTB International, Inc. stipulated a Proposed Final Judgment and Permanent Injunction (“Stipulated Judgment”) with the California Attorney General, who filed a civil action filed against YTB in August 2008 alleging that YTB operated a pyramid scheme in violation of California law, utilized misleading marketing and other materials, offered travel credentials and discounts to participants not meeting certain requirements and operated a franchise without complying with applicable franchise laws.
In addition, on May 14, 2009, the Los Angeles Superior Court entered the Stipulated Judgment that YTB said is not evidence of any wrongdoing or an admission on the part of YTB, which read: “The Stipulated Judgment defines Website Owners as those who own a website from the Company (YTB) through which they sell travel or other goods. Website Owners include those persons who are or become a franchise under the Company’s proposed franchise business model.” YTB has not made public its franchise business model, however.
YTB agreed to a number of stipulations, including:
* The company must provide consumers with information in a clear and conspicuous manner about the number and compensation of website owners and website sellers, including the typical income earned by website owners and website sellers, the typical cost of operations, the number of website owners who are deactivated, and the number of website owners and website sellers who have not earned compensation.
* YTB must clearly explain its compensation calculations and any requirements a consumer must meet before he or she can participate in the company. It also requires the YTB to establish a free demonstration website that must be used when recruiting others.
* YTB is prohibited from issuing travel credentials in California and advertising or representing that travel discounts, other perks or tax-write offs are available by purchasing a website.
* YTB must modify the practices and separate the functions of website owner and website seller, including the training, marketing and promotional information pertaining to each of them.
* YTB must also revise its website owner and website seller compensation programs and may not compensate them unless certain conditions have been met. The Company is prohibited from offering incentives to Website Owners to become Website Sellers, and vice versa.
YTB said it has agreed to periodically provide the California Attorney General's office status reports and certain information regarding the YTB’s website owners and website sellers and give access to all YTB marketing materials, events, meetings, gatherings and presentations to ensure the company is complying with the Stipulated Judgment and California law. In addition, YTB has agreed to register as a franchise with the California Department of Corporations on or before June 15, 2009.
YTB reported to the SEC that it also agreed to pay a fine of $400,000, attorneys’ fees and costs in the amount of $475,000 to the California Attorney General and restitution to California residents in an amount not to exceed $125,000.