This is news and commentary about YTB Travel published with permission from Len Clements:
In the last MarketWave Alert (#98) I reported
that the Attorney General of California has
filed suit against YTB Travel and is
attempting to close the company down for
being an illegal pyramid scheme. Now,
according to the St. Louis Post-Dispatch, an
investigation into YTB Travel has been
underway for "a while" in Illinois as well.
Read the article here:
http://tinyurl.com/YTBarticle
According to the article, a spokeswoman for
the Illinois Attorney General said, "We have an
open investigation", and that they are "…in
the process of contacting the California
attorney general’s office about their findings."
Rumors have been spreading that Missouri has
also began an investigation of YTB Travel
(mostly likely due to their mention in the
above article). I have confirmed that, at
least as of today, no investigation is
underway by the Missouri AG’s office.
Commentary:
AG investigations are like a malignant tumor
to an MLM company. If you catch them early,
and resolve them quickly, the company can
live a full and happy life with no long term
effects. But let them go for too long and it
not only becomes harder to control the first
one, but the investigative tumor
metastasizes. It can spread, and spread fast.
The YTB Tumor appears to be spreading. What’s
worse, it’s spread to YTB’s heart (California
is more like a lung – you can live without
one, but you sure don’t want to). YTB is home
based in Wood River, Illinois. You really
don’t want to get hit by your own attorney
general.
Did YTB catch it early enough? Well,
according to a recent SEC filing:
"The complaint was filed after 18 months of
dialogue, initiated by the company with the
attorney general to discuss the
implementation of the 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 the California law."
The filing further states that the parties
recently came to a "standstill" and that the
AG action was a result of the standstill.
The entire filing can be read here:
http://tinyurl.com/SECfiling
Once again, the company’s disclosure strategy
is baffling (see "Franchise Announcement"
section of Alert #98). To my knowledge, SEC
rules required that they only disclose the
presence of the tumor, but not that it was
first detected 18 months ago. With this
disclosure, and by the further commentary
that "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 the
California law", and yet YTB was still
sued
for being a "gigantic pyramid scheme" does
not bode well for the company’s chances of
negotiating their way out of this. It would
have been better had California just recently
discovered YTB, and acted quickly before
hearing the company’s defense.
This revelation also doesn’t jive well with
the oft-quoted statement from a YTB corporate
member who said, "We have not had sufficient
time to fully review the complaint filed by
the California attorney general’s office and,
as a matter of policy, do not comment on
pending litigation. However, we can tell you
that YTB believes the allegations we’ve heard
are without merit and we will vigorously
defend ourselves in court." First, the body
of the complaint
is seven pages. It’s also, I
would assume, pretty much based on the same
concerns that YTB has been discussing with
California for eighteen months.
But here’s what concerns me most. This legal
tumor is firmly embedded within YTB’s
compensation plan, where the large majority
of money is made, by both the company and
distributors, not by booking travel, but by
enrolling other travel bookers. Basically,
the company makes a substantial profit from,
and pays the majority of commissions on, the
sale of the website the travel is booked
through, not from the actual sale of travel.
And yes, based on much legal precedent, this
is something to be avoided. More details
about the reason for the CA action is in
Alert #98. So, no, YTB’s legality is not
being challenged just because most people
fail at it, or those who do make money are
mostly those who’ve worked at it the longest,
although those are all points being made by
CA as well. It’s because they pay people to
recruit other people. However, that’s not the
way the media, or the anti-MLMers, or the
myriad travel bloggers, are spinning this.
They are all saying, Look how the AG of
California is claiming this is a pyramid
scheme because most people fail at it! Or,
simply because YTB is a multilevel marketing
company! Although the acronym "MLM" is never
mentioned in this live news report, note the
title of the graphic that appears a little
past the one minute mark:
http://www.wbaltv.com/video/
And this is not rare. In fact, there have
been numerous media reports on this YTB
action all over the country, mostly in print,
and virtually all of them are citing the more
reader comprehendible "most fail to make
money" point (rather than explaining pay plan
legal theory), and are referring to YTB as a
"multilevel marketing scheme", or as the
"Multilevel marketing company that is accused
of being an illegal pyramid". Not one that
I’ve seen so far has bothered to learn enough
about the subject they are reporting on to
know that a company is either a legitimate
multilevel marketing operation, or
else it’s
an illegal pyramid scheme. If YTB is an
illegal pyramid – and the courts will
eventually decide this – then it was not a
multilevel marketing operation. It was simply
disguised as one!
So once again folks, don’t feel good about
your competitor getting bashed, even if
you’re in another travel deal. Every time a
high profile MLM company gets attacked like
this we all suffer a guilt by association.
YTB sued in Illinois for $100 million in class action suit.
http://www.amquix.info/ytb_1.html
The complaint is available there.
Scott
The problem with YTB is those travel web sites. They need to change the package so that someone who isn't looking to participate in the compensation plan would still want to purchase one of those packages to save money on travel. If they did this, they wouldn't be having the problems that they are having now.
Mr. Clements,
Now that you have written this article in August of this year, don’t you feel it time for you to tell the truth. The Calif. action was settled, the Ill. action was thrown out of office, as well as Mo. The company is well and up and running. Why not tell the truth, or don’t you have backbone to do that. Do you really think the SEC would allow YTB to continue to say in business, and on the market if they were a pyramid? You remind me of the yellow journalist that use to operate in this country. So now the ball is in your court to come clean and tell the rest of the story. In other words, tell the truth!!!
Well, Len doesn’t post here all of the time. he gives us permission to post his articles. Everything Len says in the previous article is based on the facts available at the time.
Even if everything you say is true, that doesn’t make YTB a viable business today for someone getting started. Travel is one of the worst businesses to be involved with today.
Just a minor technical point.
The SEC is only responsible for regulation regarding the stock and transactions of it.
It is not the SEC’s job to determine if the companies business is viable. As long as the company files it’s reports on time and there are no signs of manipulation then there is not a lot that the SEC can do.
The SEC had jurisdiction over Bernie’s ponzi scheme because he was an investment manager and his crime involved fraudulent stock transactions.
Now the FTC that’s a whole different story.