MLM Scheme, YTB, Sued by California Attorney General as "Gigantic Pyramid Scheme"

August, 2008

Your Travel Biz.com (YTB), one of the hottest MLMs, a member of the Direct Selling Association and a company that is publicly traded on the stock exchange, has just been sued by the Attorney General of California for operating a "gigantic pyramid scheme." YTB has a "sales force" of over 340,000 and drew nearly 20,000 participants to its annual meeting in St. Louis. In the last year, the number of YTB "agents" grew 67%.

Pyramid Scheme Alert has had a report about YTB on its site for several months and noted that the "travel" scheme was the target of protests from legitimate independent travel agents.

Additionally, commission payout data on YTB are analyzed and included in the special report from Pyramid Scheme Alert, entitled the Myth of MLM Income Opportunity. The report revealed that:

* Just 1 in 2,000 (0.05%) of all YTB agents received over 48% of the total commission payout;
* 1 in 300 (0.36%) received 70% of total payout;
* The bottom 99% of the agents received a mean average of just $1.68 per week.
* YTB, like other MLMs, sends nearly all the money directly to the top, while promising "income" to those at the bottom. In fact, the money lost by those at the bottom is the profit to those on the top!
* Also, like nearly all other MLMs, YTB sales representatives seldom "retailed" the product of travel services. They merely "sold to themselves", i.e., "self-consumed". Each distributor's profits came from fees and purchases paid in by those in their "downline."

From the press release of the California AG:
"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 said. "Today's lawsuit seeks to shut down the company's unlawful operation before more people are exploited by the scam.
"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."

Wake Up Call!
The prosecution of YTB should be a wake-up call to consumers that MLM pyramid frauds can look legitimate and DSA membership is no guarantee of legitimacy. YTB met all the standards that the DSA, BBB, the FTC and the news media regularly tell consumers to look for when examining MLMs. (Note: They seldom tell consumers to examine the MLM pay plan, payout and business model, which actually define a pyramid scheme)

* "Large and Fast Growing": YTB was ranked as America's 26th largest travel services agency.

* "Professional": YTB is a member in good standing of the Direct Selling Association (DSA), the professional association of multi-level marketing.

* "Good product": YTB agents really could book travel services for themselves and for other consumers and could often gain substantial travel discounts for themselves.

* "Legal": No action had ever been taken against YTB by the United States Federal Trade Commission (FTC) or any other state Attorney General.

* "Prominent": YTB was in a marketing partnership with the Kansas City Chiefs football team for fans' and team members' travel services. (See the Youtube video)

* "Generous and Patriotic": At its upcoming national convention it was to unveil the world's largest replica of the Statue of Liberty (130 feet high and weighing 50,000 lbs.) and then donate it to an Indiana town in honor of police and armed forces veterans. (See the Youtube video)

* "Regulated": Additionally, YTB is a publicly traded stock, (Symbol: YTBLA.OB) and is therefore regulated by the United States Securities & Exchange Commission (SEC). The SEC had not found cause for any investigation of what the California AG charges is a "ripoff, scam, pyramid scheme and an unlawful operation." YTB had a market capitalization of over $180 million. More than 280,000 shares of its stock were traded every day and it was selling (prior to the prosecution) for over 100 times earnings.

The California action is based in part on California statute against "endless chains." Other states have similar laws as does Canada.

The Attorney General's complaint states:
"Defendants operate an illegal endless chain scheme in violation of California Penal Code section 327 in that consumers pay Defendants hundreds and/or thousands of dollars each for online travel agencies and related materials for the chance to receive commissions and bonuses from Defendants as a result of consumers' recruitment of new participants to purchase and sell such online travel agencies."

California Penal Code section 327 defines an "endless chain" as: "[A]ny scheme for the disposal or distribution of property whereby a participant pays a valuable consideration for the chance to receive compensation for introducing one or more additional persons into participation in the scheme or for the chance to receive compensation when a person introduced by the participant introduces a new participant."

What About Other MLMs?
Pyramid Scheme Alert is writing the California Attorney General's office asking it to apply the same standards of legality to other MLMs such as Herbalife, Amway, Usana, Pre-Paid Legal and other MLM "travel" programs that it is now applying to YTB under Penal Code Section 327.