YTB Hit With $1 Million Fine, Restrictions

Bringing an end to an "elaborate pyramid scheme," California’s Attorney General Edmund G. Brown Jr. today said it had completed an agreement forcing YTB International to stop the “deceptive marketing of its largely unprofitable travel websites” and hit YTB with $1 million in penalties.

"YTB falsely promised customers they could get rich quick by selling travel online," Brown said. "In reality, customers were reeled into an elaborate pyramid scheme and most never earned a dime. Today's settlement ends YTB's pyramid scheme by arming consumers with hard facts and eliminating the need to sign up for this largely unprofitable website."

Today's stipulated judgment, filed with the Los Angeles County Superior Court, accomplishes this, Brown said. The judgment includes:
*    Requiring YTB to pay $1 million in penalties, costs, and restitution to California victims who filed complaints against YTB
*    Prohibiting false and deceptive marketing
*    Requiring that YTB provide consumers with information in a clear and conspicuous manner about how difficult it is to make money by selling travel through YTB
*    Prohibiting the company from charging nearly $500 to recruit others into the scheme and requiring that new member recruitment be done using a free online demonstration
*    Limiting income from "downstream sellers" (e.g., people who have been recruited and who have become recruiters themselves)
*    Eliminating perks and other incentives for joining
*    Making it easier to quit.

In August 2008, Brown filed suit against YTB (also known as, its affiliates, and founders to end the pyramid scheme and stop YTB's false and misleading marketing campaign.

YTB lured consumers into its travel business with false promises of wealth and deceptive marketing, Brown said. YTB charged customers $449.95 for the purchase of a website, and $49.95 a month to operate it. In total, consumers paid YTB over $1,000 in the first year of operation.

Brown said that many signed up to sell travel or to obtain travel discounts, but they quickly found it virtually impossible to make money selling travel. A plane ticket from Los Angeles to New York, for instance, would only yield $3 in profit. An international ticket from San Francisco to London would net only $6 in profit.

“In 2007, the annual median income for those selling travel was $39.00, less than one month's cost to operate the website," Brown said. "The majority of consumers who purchased YTB websites made no money through the sale of travel, and many lost money through continued website operations. By contrast, recruiting others to purchase websites, and having those purchasers recruit others to purchase websites (and so on), was much more profitable. Members earned money based on how many websites they sold, as well as how many websites those they recruited sold. These multi-level sales, combined with the required purchase of the $449.95 website, formed the foundation of YTB's pyramid scheme.”

The agreement requires YTB to open up its operations to scrutiny by the Attorney General's Office. The Attorney General's Office will have access to all YTB marketing materials, events, meetings, gatherings and presentations to ensure the company is complying with the agreement and California law. YTB will also register as a franchise with the California Department of Corporations as required by law.

In filings with the SEC since Brown's 2008 lawsuit, YTB stated that there is "substantial doubt about the Company's ability to continue as a going concern." Also, it revealed that, in 2008 and the first quarter of 2009, YTB has lost $5.9 million from its operations. The number of Internet websites sold decreased 75 percent in first quarter 2009 compared to first quarter 2008, and the total number of website owners decreased 53 percent in first quarter 2009 compared to first quarter 2008.