Travel agents concerned with the future of YTB Inc. and its impact on the travel industry will have to wait until September when, reportedly, the lawsuit by California’s state Attorney General against YTB will be heard in a Los Angeles court.
The State’s attorney general filed the suit against YTB in August 2008, alleging that YTB “operates an unlawful endless chain scheme (pyramid scheme) that relies on untrue and misleading representations and unlawful, unfair, and fraudulent business practices.” This, the state said, includes “violations of laws regulating the sale of seller assisted marketing plans, franchises, and travel discount plans.”
While YTB has remained silent on the charges, as is their right, the issues have special meaning for agents who are also facing the demise of TravelStar/JoyStar which, at press time, may impact scores of agents and at least $350,000 in unpaid commissions. Both Carnival Cruise Lines and Norwegian Cruise Lines have dropped JoyStar. Unlike YTB, however, legal action is being left to individuals.
The basics of the allegations against YTB are worth repeating. The state argued that “While Defendants (YTB) purport to be in the business of selling travel, their real business is the operation of a pyramid scheme that relies on the sale of essentially worthless websites they refer to as “online travel agencies. For the opportunity to own and operate an online travel agency, consumers pay Defendants over $1,000 per year.
“To entice consumers to participate in their scheme, Defendants make untrue or misleading claims that consumers can become millionaires and receive special travel discounts offered only to professional travel agents. However, in 2007, consumers paid over $103 million to Defendants for websites, but made only $13 million in travel commissions in a business Defendants advertised as the “easiest way to make money” and earn 'serious income' without any selling.
“Of the more than 200,000 consumers who purchased or maintained Defendants’ websites during 2007, 62 percent failed to earn a single travel commission—not even on their own personal travel. The typical participant made no money on the sale of travel. Furthermore, the typical annual travel commission earned was less than the cost of just one month for a consumer to maintain his or her website.
“Even among those California residents who participated in Defendants’ program for at least one year from April 1, 2006 to March 31, 2007, and who paid Defendants at least $1,000, 45 percent did not sell any travel and 61 percent made less income on the sale of travel than the cost of one month’s use of their website.
“While the vast majority of consumers made nothing selling travel, Defendants generated 73 percent of their net revenue of over $141 million dollars from the sale of websites and monthly fees. Another 10 percent was generated through the sale to consumers of training and marketing materials. Only 14.5 percent of Defendants’ net revenue were generated from the sale of travel. In short, Defendants sell an illegal pyramid scheme that uses the minor, incidental sale of travel as a front for their scheme.”
The attorney general asked for a civil penalty of at least $15 million and restitution of least $10 million. YTB’s management has to date declined to comment on the action.