Update on YourTravelBiz.com Legal Proceedings

Earlier this week I wrote about the California Attorney General filing a lawsuit against YourTravelBiz.com (YTB) and calling the company a “gigantic pyramid scheme.” Of course, the company has published a response to the lawsuit that tends to seriously downplay the charges against them. They list the charges, which do not sound all that serious: Unfair Competition and False Advertising.

What YTB neglects to mention in its statement about the lawsuit is all the good stuff in the complaint about the company being a pyramid scheme. Here is what the company had to say about the lawsuit:

On August 4, 2008, a civil action was filed against three subsidiaries of YTB International, Inc. (the “Company”) and certain executive officers of the Company in the Superior Court of California, County of Los Angeles, by the California Attorney General. The complaint alleges that the defendants violated California’s unfair competition and advertising laws. The Company believes it has operated in full compliance with California law and intends to vigorously defend the case.

The complaint was filed after eighteen (18) months of dialogue, initiated by the Company with the Attorney General to discuss the implementation of a new California law’s potential effect on the Company’s business model. Throughout these discussions, which broadened over time, the Company has consistently cooperated with the state’s information requests and provided detailed evidence in face-to-face meetings explaining how and why the Company’s business model is in full compliance with California law. The parties recently came to a standstill and the August 4, 2008 complaint is a result of this standstill. The Company believes it has meritorious defenses to the claims, intends to advocate its position aggressively, and believes it will ultimately prevail in the case.

Scott Tomer, CEO of the Company, stated “we are disappointed that the state has decided to take this action. We firmly believe that the facts in this matter support our position and our legal counsel has advised us that our position is strong. The Company will vigorously defend this matter and we look forward to having the courts decide the merits of our case”.

Things don’t sound all that serious until you take a look at the actual civil complaint filed by the Attorney General. Here are some of the highlights from it:

  • While Defendants 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% 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% of their net revenue of over $141 million dollars from the sale of websites and monthly fees. Another 10% was generated through the sale to consumers of training and marketing materials. Only 14.5% 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.

I’d like to suggest that there are many, many more multi-level marketing companies that would fall under these descriptions as well if the companies were forced to track actual retail sales to actual outside customers (not pretend retail sales just to distributors).

You see, YTB makes it easy for everyone to see what a scam it is because they publish the figures related to actual travel sales. They publish this information because they’re a public company. And because they purport to sell a service instead of a product (which distributors stockpile in companies that do “encourage” inventory), it’s much easier to see how much real travel business is done by analyzing the numbers in the public filings.

If companies like Usana, Herbalife, and Mary Kay were forced to track actual retail sales, I think we’d see much the same thing: That very little of the money in this business comes from actual sales to actual customers. Instead, it’s essentially people passing their money up the food chain, hoping someday they can build a big enough downline to have people pass money up to them too.

Illinois says it’s now investigating YTB too, and it seems that other states might not be far behind. I’m interested to see what impact this might have on multi-level marketing as an industry. I expect that other companies will start scrambling to show the world how they’re “nothing like that naughty YTB.” Expect the companies that sell products to hold up their products as the main reason they’re not a pyramid scheme like YTB: “We have a real product that we sell to real customers. See all these sales to distributors? We promise that we think they actually sell them to customers.”

I’m not hopeful that this will have a big impact on MLM in general. The downfall of BurnLounge had no real impact, and I wouldn’t be surprised if YTB ends up being viewed as a fly-by-night that operated illegally, while the other MLMs continue to pretend they’re not pyramid schemes.

Oh, and consumers…. You can sleep well at night knowing that the Direct Selling Association (DSA), the member-run organization that spends zillions of dollars lobbying to keep their abusive MLM business model legal (or maybe more properly keeps their illegal business model from being prosecuted), says they have a “code of ethics”, they don’t allow pyramid schemes, and if YTB has violated the rules they’ll do something about it. Phew. I feel better.

19 thoughts on “Update on YourTravelBiz.com Legal Proceedings”

  1. This is so funny! People who work hard will usually succeed in business! So if this is so bad, than why are ordinary people like me making money at this? I’ll tell you why, I WORK HARD AT IT! I always hear negativity about YTB as a “Pyramid”. Well, think about this. To do marketing in YTB there is absolutely no cost. If you purchase a product, (YTB sells) it costs money. WOW, new concept aye?

    A web site already built, a paperless back office, and ability to grow if you work at it!
    This “Get rich quick business model”, MLM business, is set up so that if you work hard you get successful and the company pays you handsomely for it. Wow, this is so bad. There are those that are quick to complain, and attack YTB. Brick and mortar Travel agencies, those who fail to market their site effectively etc…

    I say, those who are attacking YTB are most likely those who are scared YTB is actually making a HUGE dent in the Travel industry. Why not sue Expedia, Priceline, for example, to name a few ? Are they also e-commerce travel web sites? OH, it’s the way were getting paid. Get real. If this is such a criminal enterprise, why are people joining and staying involved? It’s called, tax advantages, good pay and great benefits, IF YOU WORK FOR IT! Knock off attacks and join a leader in the business. Just think, or three or four years, I may not have to work anymore!

  2. Jeffrey – Unfortunately, hard work in MLM doesn’t mean that you’ll have success. 99% of people in MLMs LOSE MONEY. Do you think they’re all lazy losers who don’t try hard? And have you seen the numbers? YTB doesn’t seem to be selling a whole lot of travel.

    And for the record, I don’t think the Attorney General of California scared of any “dent” that YTB might make in the travel industry.

  3. Tracy, PRESSURE from Brick and Mortar companies are the “scared ones”. They complain enough to the AG, and they in turn file their complaint to investigate. YTB is a Publicly Traded Company, therefore, the ONLY MLM Co. who shows the numbers. Obviously because they are showing these figures, do they get dragged through litigation.

    If they were Primerica, Amway or any other MLM business, they would all be investigated. At least there’s no mandatory inventory to purchase every month. Build YTB as you want too. No one is forcing anyone to purchase YTB’s web site. Were all adults here.

  4. LOL @ Jeff – No mandatory monthly purchase? No! Just a mandatory monthly fee for which the “agent” receives nothing.

  5. Yes, a fee if YOU decide to do marketing and purchase a web site. You still can market for free. If you want both, a fifty dollar/month licensing fee applies.

    Remember, this will be free after some work. The company pays all your expenses back to you as you grow. I have been involved in YTB since Jan 08. My web hosting is free and have recouped all expenses so far. I have been making money every month and when those $1000 bonuses come in it’s a great feeling. My union job has NEVER paid me as well as YTB has. Well, like everything else, this may not be for you Tracy, so do not get involved. Let those who work for it, profit from it… Nothing like residual income in the years to come……..

  6. Are those bonuses for selling travel or for recruiting? Because as we’ve seen, this is a recruiting scheme that ultimately has little to do with travel.

  7. Recruiting bonuses. Just to let you know, when more people are in the business, I make 10% of everyone’s (I recruited) commission when people book travel on THEIR web sites. That is why you recruit. Every month a check comes in for commissions paid out FOR TRAVEL.

    This is how the company grows. More employees, means more booked travel. Hey when was your personal vacation a tax right off? Mine is!! Welcome to the advantages of being a Travel Agent. I love this business and this Country.

    Jeff- Have a good day Tracy

    ***** scam link removed ******

  8. Jeff – You don’t have employees. You have people that you’ve recruited into the scam. And your “bonus” is not for booking travel, it’s for recruiting, just as you said. That’s a recruiting scam.

    And no, your personal vacation is not a tax write-off, but I’d be happy to report you to the IRS and have them audit you for that.

  9. Just one question Tracy, were you in YTB? The truth please. Recruiting, if you will, is just that, recruiting. Just like the military or any other job, where you REFER someone you know to your employer. But this company pays for that. I never got a bonus for bringing on anyone at my job who turns out to be a great employee. I never get 50% of someone else’s pay by my other job.

    Remember, commissions are paid for all travel booked. I get 10% of everyone’s commission paid directly to me because I worked hard for it. Sounds like you have a little anger issue. So your going to report me to the IRS? Good come back, just when I thought we were having a great dialogue.

    Still, have a great day. 😉

  10. Jeff – No, I’ve never been in YTB, but that doesn’t mean I’m not qualified to identify a recruiting scam. Far from it. You’re making your commission almost solely from recruiting, and not from actual travel sales. THAT is what makes it a scam. People are transferring money to and from one another for the privilege of participating in the opportunity to recruit others and transfer more money. That’s a classic pyramid scheme.

    I don’t have any anger issues. What on earth do I have to be angry about? As I expose scams like this, the kool-aid drinkers almost always claim I’m angry about something. Sure, I’m angry that people are getting scammed by people like you… but don’t worry, I still sleep okay and am able to live a full life in spite of your participation in a dishonest scam.

    The IRS issue isn’t a “comeback”. If you’re going to brag about cheating on your taxes, the least I can do is offer to report you to the IRS.

  11. Good Job Tracy! Read your tax codes. Self employment has it’s privileges. I guess my involvement in this industry qualifies me as a criminal. Publicly traded, hmm.
    I guess I will not be paying taxes when my 10-99 comes in from YTB.

    I guess this is personal with you. Bragging I have not done, but working hard I have. If that is a scam, I guess I am guilty. Now that is stopped raining, off to my third job. (another self employment scam). Thanks for making me a believer…

    Have a great day and God Bless!
    😉

  12. Jeff – You’re the one who needs to brush up on tax laws. A personal vacation is not a legitimate tax deduction, no matter what your upline has told you. Quit drinking the kool-aid and come back to reality.

  13. Hi Tracy,

    I came across this site as I was researching the subject of short selling of MLM company stocks. I was curious about what Wall St. thinks about MLM companies….I have great interest in the subject because I got involved with an MLM company after I was laid off from my first job (out of college), and it was a disaster.

    MLM is very insidious. As you point out, the pyramid structure is thinly veiled by the “product,” whatever that might be. These companies often tout big revenue numbers, but these figures are misleading to the average person. We are now in the information age, however, and the cards are starting to fall for the MLM industry, in my opinion. People now have access to information such as your blog/ articles, and I think the AG’s are pretty much fed up with these companies. All anyone needs to know is that the majority of the “sales” of the “products” are made to the associates of the company.

    Anyways, this whole subject is sad. People like Jeff have no idea of what they are really doing. I had no idea. There are very good, intelligent people with very good intentions who are embroiled in these things. I still can’t believe how these companies continue to suck people in, although I’d say they are having a much harder time nowadays, at least in the US.

    The big dogs in these companies are very, very good at what they do. They would probably be very successful doing any number of things. Their salesmanship is exceptional….It has to be in order to sell a “product” with such a poor track record.

    The worst thing about all of this is not even all the money, time, and relationships wasted as these companies churn through “associates” (or whatever they like to call them). It’s the fact that, ultimately, these programs recruit by appealing to positive human ideals. For most of the recruits, it’s not greed that sucks them in. It’s the genuine desire to make their lives, and the lives of their families, better. The phrase “be able to spend more time with your family” is very powerful and it’s used extensively within MLM.

    When you strip it all down, it’s about exploiting what makes us good as human beings, and that’s criminal.

    I think part of the problem is that not even some of the people within the highest levels of MLM know or think that they are doing anything wrong ethically. People see products, revenues, colorful brochures, the fact that a company is publicly traded, and they see legitimacy. It’s all magnificently orchestrated and it convinces a lot of people, even the executives themselves.

    If I only knew then what I know now…..Even from a pure business perspective, I see MLM as a horrible business model and/or distribution channel. “Direct sales” may have had it’s place in history, but that ‘s long gone. The fact that even investment banks buy shares of these stocks for their funds has me scratching my head. What do they not understand? Clearly, Tracy, you have more work to do!

    Thanks,

    Marc

  14. I know nothing about MLM’s except everyone that comes along I am given the “opportunity” to partiipate.
    This includes: Amway, Excel, Quixtar,YTB….I have said no thanks to all but Excel years ago and I did not get hurt there.
    I have a question: All the YTB people I knew in the business have pulled out having spent much moire than they made and they are now looking at yet another MLM
    MyShoppingGenie.com……I am invited to sign up…..how can I find out if this is good or bad? I understand not all of them are bad. Where do you go for good information?

  15. The main problem with people involved in MLM or pyramid schemes is getting them to admit that it’s a scam. The more heavily involved you are the most you have to justified and tow the party line that it’s not a scam. They say the age old bull crap that you have to work hard to get results.

    The truth is the more invested you are the more you try to recruit others the scheme to payoff your investment. Back in the 90’s a Canadian company was selling a vacation package that required you to recruit more people to pay for your investment. When the AG in Iowa shut it down as a pyramid scheme a local news crew interview the members at a meeting in Cedar Rapids.

    When told it was pyramid scheme the comments made by the people outside of the meeting was “So what?”. “Let us continue what we are doing because we invested money in this and we want to get our money back.” The prevailing attitude was to let new members join and let the newbie’s try and earn their money back. In other words they knew it was a pyramid scheme and they just wanted more suckers to join so they could get their money back.

    Most people don’t realize that MLM and pyramid schemes thrive in bad economic times. Why because if you have a job and times and good you are not going to quit a good paying job for a business venture that has no benefits. If you read the horror stories of the people who invested in MLM you will find a common theme running through it that they were unemployed looking for work. Or some times they were underemployed and were looking for extra income in hopes of quitting they low paying job for more income.

    You see it’s the greed or desperation that attracts people to these schemes. They need money so they join which causes them to burn through their savings and their family and friends. Sadly some people are disable or unemployed and are in desperate need of cash so they try MLM because it’s the only “work from home” business that promises big returns with in days or at least within a month.

    What’s disturbing is that there is so many of these schemes that they government does have time to investigate and shut down these con artist. Real honest legitimate work at home businesses are so few and far between that don’t involve selling are virtually non-existent. Real honest work should involved making a product or doing a service that you benefits the customer. Not this selling crappy products that you can get a store cheaper and better quality when you buy name brand products. My mother used to call these companies fly by night operations.

    What’s even worst the higher up these people are in MLM the more they tow the party line. Even when some of these people running these pyramid schemes get arrested, put on trial and convicted they still say they did nothing wrong. The fact is what they are doing is criminal and they themselves are criminals. Very seldom does a criminal ever admit to confess their guilt in a crime. They are always innocent and the company they are running is legitament. The truth is they admit their wrong doing because it will open up the flood gates of lawsuits against them. By playing their denial games they hope to wear out their victims and hope the lawsuits go away do to lack of funds.

    Finally those who try their hand at MLM and finally give up, never tell their story on account of being labeled a fool or the embarrassment of being knows as one who fell for the scam. We need more people’s stories to tell the truth of how they lost money, friends and family over these bull crap schemes.

  16. I have just gotten back from a meeting last night introducing me to YTB. Of course the speakers were a dynamic couple that were climbing the success ladder with over 250 recruits in their downline within two years, and are making $265k plus a year! I am looking for a part time gig to suplement my income while the Real Estate business recovers. It all sounded GREAT and I was almost ready to sign up until I checked this site and read all the negative comments. Now I don’t know. It’s not alot of money up front to join and everyone there seemed to be doing well. Now I just don’t know…Some opions please!

  17. Debby,

    No matter what they tell you, YTB will never be able to compete with the major players who are already established in the travel industry. They make most of their money from selling the websites and the monthly fees, not from selling travel.

    All you need to do is search for a flight on both YTB and Expedia/ Travelocity/ Orbitz and see what the difference is in price- hardly anything. Why would the average person on the street go to YTB to buy travel when there are so many other reputable companies out there?

    This company is selling websites, plain and simple. They are selling you a dream, and they are very good at it. Ask all of those happy people to see their tax statements before deciding if there is really money to be made in this. A year from now, the majority of all of those people will be gone, and there will be new people in their seats, and on and on it goes…..

  18. Thanks Marc, that was quick! Yes, I know you are right. It was just nice to think it could actually be as good as it seems. Oh well, nice dream, moving on. I’m so glad I checked this website!

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