YTB Called “Gigantic Pyramid Scheme” By California Attorney General (and Sued, Too)

Yesterday on WalletPop, I wrote about how California’s Attorney General announced a lawsuit against YourTravelBiz.com (YTB) and called it a “gigantic pyramid scheme.” The evidence that it is a pyramid scheme is based upon the fact that the company theoretically offers members a chance to sell travel services to customers, yet that’s only a small fraction of how the money really flows.

The real money in YTB is in recruiting new members, who pay $450 to join and pay $50 a month to stay active and eligible for commissions. Hmmmm… Kind of sounds like the $448 it costs to join Shop to Earn and the minimum monthly purchase of $100 from its “Shop to Earth” products in order to be “qualified” to be paid commissions.

It doesn’t even seem like YTB tried to hide the fact that it was a gigantic pyramid scheme. In 2007, there were over 200,000 members, and only 38% of them made anything from actually selling travel services. And for those who did make money selling travel services, it averaged $39 a year.

And late last year, another WalletPop writer, Zac Bissonnette, clued in on the proof that YTB is a pyramid scheme. He wrote:

The latest 10QSB for the company provides damning evidence that this company’s online travel agency business opportunity is nothing more than a classic pyramid scheme. How can we tell so quickly? 2 lines under “Net Revenues” tell the story.

Three Months Ended
June 30, 2007
Online travel store sales and monthly license fees $23,309,601
Travel commissions and services $5,856,731

Three Months Ended
June 30, 2006
Online travel store sales and monthly license fees $7,405,332
Travel commissions and services $1,904,131

Quite simply, the YTB agents pay way more in fees to YTB than they make in commissions from selling travel products. Sounds like pyramid scam to me….

Similar Posts:

13 Comments

  • quixtarisacult says:
    9 August 2008

    Why go after a small fry pyramid scheme while the big fish Amway whale swims by? Maybe some one missed their payoff?

  • Tracy Coenen says:
    9 August 2008

    I think that YTB incriminates itself by its SEC filings. The numbers in there clearly demonstrate the fact that it’s a pyramid scheme – almost no travel sales. Companies like Amway and Usana and Mary Kay avoid problems like this because they pretend that their products are being sold to real retail customers. And who can disprove them? Until these companies are forced to document actual retail sales, we may never have the proof that they’re pyramid schemes too.

  • TerminatedRamp says:
    9 August 2008

    Tracy, You wrote “Usana … avoid problems like this because they pretend that their products are being sold to real retail customers. And who can disprove them? Until these companies are forced to document actual retail sales, we may never have the proof that they’re pyramid schemes too.”

    USANA states that over 95% of active distributors (commission qualified) are on autoship. They also state that over 99% of commission earning distributors are on autoship.

    What does this mean? Those distributors that are on autoship are purchasing the product themselves to meet USANA’s 28 day MANDATORY distributor purchases to be eligible for commissions and bonuses. These purchases range from $107 to $242 every 28 days, thirteen times a year. These purchases do not pay the commission to the purchasing distributor, but pays commission for their upline distributors. So even if a distributor tries to sell the product to someone on the street, they wouldn’t get any commission for the sale, but their upline would! Also, Distributors go on this autoship plan because it is 10% cheaper. Why would a distributor want to pay a $114 fee when they can pay a $107 fee, especially when the fee is “REQUIRED” to participate in the venture.

    The FTC letter to the DSA in 2004 specifically describes this type of activity as an illegal pyramid scheme. http://www.geocities.com/terminatedramp/FTC_Letter.pdf

    When USANA’s upline leaders are enriched from the required purchases of its downline members, then it is an illegal pyramid scheme. Even a USANA distributor I debated admitted that the upline leaders are enriched from the mandatory purchases, but then claims it is okay because real product is involved. They then claimed that the FTC doesn’t considers MLM companies a pyramid scheme because there are REAL product involved.

    Here is their quote: http://finance.google.com/group/google.finance.660911/browse_thread/thread/9108a9d640106ed0
    “if you look at a business that is maxing out every week, it maxes out from this PV requirement….because these sales are processed Sunday or Monday mornings…at the start of the week before any other customer orders are placed. This is how upline leaders become rich from these mandatory volume requirements. HOWEVER, product is being sold. If we were all required to pay $200 a month to keep our business running, absolutely, I’d have problems with that. But we’re not paying to keep in this money game, we’re paying for $200 worth of product. And you know what, if people find this $200 too
    much, they sell it to retail customers.

    The FTC has ruled that MLM/Network Marketing companies are not Pyramid/
    Ponzi Schemes, because REAL products are being sold. ”

    So I think there is a mountain of evidence that shows USANA is a pyramid scheme.

  • Tracy Coenen says:
    10 August 2008

    I think there is too, but there has been this longstanding charade with law enforcement claiming they don’t understand how/why this proves Usana and the like are pyramid schemes. Lobbyists at the DSA have done an excellent job of “educating” them.

  • BJean says:
    10 August 2008

    Doesn’t matter if it’s pyramid or not. Other states will join in and once legal fees start to jeopardize owners pocketbook, they will shut it down. We’ll see…..

  • Paul says:
    11 August 2008

    For arguments sake, above it states “travel commissions” from undetermined source. We run with it and assume it is actual and based on factual SEC filing. If we were to sit down with a reasonably decent calculator and say, punch in 50 mil (50,000,000.) and then subtract 10%, which I believe is a safe estimate of what travel agencies are paid nowadays, one would see that the reasonably decent working calculator would come up with $5,000,000.00. Which makes me think that they actually sold $50,000,000.00 in travel revenue to qualify for the 10% commission. It’s just a thought and an observation. Aren’t we jumping the gun here? When the smoke clears, we’ll see who the real winners are. I’m betting YTB comes out on top. They’ve beat this twice before. Seems like everyone thinks they are an expert these days.

  • Tracy Coenen says:
    11 August 2008

    Paul – What I think you’re missing in your analysis is that this is a recruiting scheme, and THAT is what’s demonstrated by the numbers. There isn’t enough travel sold to even come close to covering the fees that all these “agents” pay for the privilege of having the travel sites. That’s not a business. No travel agent would be in business if they paid 4 or 5 times more rent for their office than they ever brought in via commissions. And that’s exactly what’s happening here.

  • Vlad says:
    12 August 2008

    You know guys,, whether with YTB or without, traditional travel agencies will keep closing their doors, 98% of people I talked to book their travel online. So my task to book the travel through them. I think I a person signed up to be RTA their primary focus, should be selling travel, and secondary goal is selling travel agencies. You call it recruiting, I call it selling online travel stores, and when some one guys it I get paid commission. YTB never had such statement that if you join us yo will make millions, and get travel discount just like that. The registered with CLIA and ask RTA to follow CLIA guidelines, They do still have their ARC Number. And Carnival Cruise Lines awarded YTB Pinnacle Award 3 years in row, YTB was very first to receive it, Our vendors constantly, Offer training to RTA’s how to sell the product, Those who learn they also earn.
    When person buy Online Travel Agency it is their business, the only thing that YTB is responsible is provide all the training to the RTA’s and RAP’s.
    All I can say is: WELCOME TO NEW ERA OF COMPETITION.
    The Only Reason they are sued if because they are getting bigger, and stronger and their competitors do not like that. You know where 99.9 % of complaints coming from TRADITIONAL or people that have an agenda to promote their own business.

    I wish you all well, And pray God’s love and Blessings upon you and your families, we all need it in this tough world.

  • Bob says:
    16 August 2008

    You can do this as a MLM, you can (as many have) set this up as a travel agency online and eliminate your brick and mortar travel agency (one lady closed 6 travel agency buildings and does all her business thru her site) for $50 a month (way cheaper than rent, heat, light, emplpyees, payroll tax, etc), or you can sell sites to non profits (I do this) as a fund raiser for use with their supporters, volunteers and emplyoyees ($500 one time, no monthly fee) and they get 60% of every commission dollar for simply promoting their own site. Their are currently over 2400 non profits with sites. And, you touch on an interesting fact or two: 1. Pyramid schemes (or ponzi schemes) are totally illegal. 2) How would a publically traded company, under extreme SEC scrutiny (I am a stockbroker, I know) blatantly, publically break the law for over 6 years? and 3)of all the MLMs out there, how many open their books to everyone because they are publically traded? (try none or next to none – eg amway, etc)
    These guys are shaking up the travel world and this is a very predictable response and consider the source – Jerry Brown! who is also suing most of the top 50 or the Fortune 500 as well!

  • Tracy Coenen says:
    16 August 2008

    Hi Bob – You’re forgetting that laws can be broken, but not enforced. It happens all the time.

    And under your logic, no public companies commit fraud? Apparently not!

    You can’t be much of a stockbroker if you think the SEC provides “extreme” scrutiny. Public companies commit fraud all the time.. Look at Enron and Worldcom.

    None of your arguments hold water,

  • Randy says:
    22 August 2008

    Enron & WorldCom was hiding all of it’s wrong doing. YTB has done nothing wrong and has nothing to hide. Get a clue.

Leave a Reply