YTB faces legal action in California for illegal pyramid scheme
In a move that will be welcomed by many professional travel agents, California Attorney General Edmund G. Brown Jr. has sued YourTravelBiz.com for operating a gigantic pyramid scheme. The state alleges that YTB “recruited tens of thousands of members with deceptive claims that members could earn huge sums of money through its online travel agencies.” If found guilty, YTB could face fines and restitution as high as $25 million.
“YourTravelBiz.com operates a gigantic pyramid scheme that is immensely profitable to a few individuals on top and a complete rip-off for most everyone else,” Attorney General Brown charged. “Today’s lawsuit seeks to shut down the company’s unlawful operation before more people are exploited by the scam.”
Brown charges the company, its affiliates and the company’s founders J. Lloyd Tomer, J. Scott Tomer, J. Kim Sorensen and Andrew Cauthen with operating an “endless chain scheme,” an unlawful pyramid in which a person pays money for the chance to receive money by recruiting new members to join the pyramid.
Brown also charges the company with unfair business practices and false advertising practices including deceptive claims that members can earn millions of dollars with the company, operating without filing legally mandated documents with the attorney general and the Department of Corporations and selling an illegal travel discount program.
John Frenaye, a veteran agent and critic of YTB, said the state’s move was a “decisive win for travel agents and the travel industry” and could go a “long way to end the multilevel marketing challenge to the industry.” Last year, Frenaye collected more than 2,700 signatures from agents and suppliers opposing multilevel marketing.
In a statement, the attorney general said YourTravelBiz.com and its affiliates operate an illegal pyramid scheme that only benefits members if and when they find enough new members to join the scam. “Once enrolled, members who join the pyramid scheme earn compensation for each new person they enlist, regardless of whether they sell any travel. The company lures new members by offering huge income opportunities through online travel agencies, yet the typical person actually makes nothing selling travel.
“According to company records, there were over 200,000 members in 2007 who typically pay more than $1,000 per year—$449.95 to set up an 'online travel agency' with a monthly fee of $49.95. In 2007, only 38 percent of the company’s members made any travel commissions. For the minority of members who made any travel commission in 2007, the median income was $39—less than one month’s cost to keep the website. There are at least 139,000 of the company’s travel websites, all virtually identical, on the Internet.”
YourTravelBiz’s extensive marketing materials include videos of people driving Porsches and other luxury cars, holding $10,000 checks and claiming to be raking in millions of dollars in profits. The company advertises through its Website, www.ytb.com, and at conventions, workshops and nationwide sales meetings that have been held in California locations such as Los Angeles, Sacramento, San Francisco and San Diego.
Under California’s unfair business practices statute, the company is liable for $2,500 per violation of law, the statement said. “Attorney General Brown is suing YourTravelBiz.com to get a court order that: Bars the company from making false or misleading statements and assesses a civil penalty of at least $15,000,000 and at least $10,000,000 in restitution for Californians who were ripped off by the company.”
The Attorney General’s statement also noted that from August 6 through 10, “thousands of members are preparing to travel to St. Louis for a national convention to learn new techniques to recruit more victims into the illegal pyramid scheme. Last year at least 10,000 people attended a similar national conference.”
For more information on pyramid schemes visit: http://ag.ca.gov/consumers/general/pyramid_schemes.php
Any consumers who believe they have been bilked by YTB should send a written complaint with copies of any supporting documentation to: Office of the Attorney General, Public Inquiry Unit, P.O. Box 944255, Sacramento, CA 94244-2550. Or through an on-line complaint form: http://ag.ca.gov/contact/complaint_form.php?cmplt=CL.
Comments
The problem with YTB is that they make the vast majority of their money on selling travel stores, not selling travel. Most companies pay to market their product. YTB's product (online travel/ticket etc. booking) is a footnote to the moneys gained by selling travel stores to new RTA's. Everyone jumps in thinking I have a travel business, but don’t make any money until they get involved with the MLM side of things. Look at their SEC filings (below). It's a joke! Look if you’re a good salesman and you like ripping people off… hats off to you, you might do very well at YTB recruiting RTA's. The truth is only a few at the top are making any real money of the travel bookings. The vast majority just hand over $500.00 plus $50.00 a month for while to the real geniuses. The owners of YTB... you know, the guys stealing your money.
http://biz.yahoo.com/e/071114/ytbla.pk10qsb.html
This is sad. I personally don't see what the big deal is. If someone is able to recruit someone into a company, and they are paid a commission for that person coming in, isn't that the way sales works? You sell something and you get paid for it. Now I could see if only the top people in the company were making money, but as long as the new people had the same opportunity to build a team and make the same amounts as the 'top' people I really don't see what the big deal is. Let those people sell their stuff and eat up the tax deductions!
Is MLM Travel a viable business model? Do any of the MLM travel companies really book enough travel to create a sustainable business? Humm...
The other companies are going to have to move quick to add other products or services to increase sales volumes so they can pay commissions to justify the monthly charges. How many MLM travel agents are ready to call themselves lifestyle agents?
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