California Attorney General Complaint Reveals YTB Economics

 

 

The California Attorney General’s complaint against YourTravelBiz.com (YTB), recently filed in Los Angeles, offers insight into YTB’s operations and finances. The Attorney General alleges that YTB sought 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.” If proven, YTB could face $25 million in restitution and penalties.

Key points from the Attorney General's complaint, include:

“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," the complaint says.  "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," the complaint alleges. "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," the complaint says. "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 state said that the “attrition rate of participants is extraordinarily high and, as with all pyramid schemes, the advertised growth is unsustainable.”