Consumer Alert! MLM Scheme, YTB, Sued by California Attorney General as "Gigantic Pyramid Scheme"
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 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 is expecting nearly 20,000 participants at its upcoming annual meeting in St. Louis. In the last year, the number of YTB "agents" grew 67%.
Pyramid Scheme Alert has been posting complaints and questions 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 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.
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Lobbyist, Direct Selling Association (DSA), Seeks to Legalize what the California AG Prosecutes as Pyramid Fraud
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The multi-level marketing scheme, Your Travel Biz.com, which is now being sued by the California Attorney General as a "gigantic pyramid scheme," won membership in the Direct Selling Association in 2007. DSA is the lobbying and trade group for multi-level marketing. It advertises its membership list like a Good Housekeeping Seal of Approval for MLMs.
In a Sept.,
2007 press release when YTB was given membership, the DSA wrote:
"The members of the
Direct Selling Association pride themselves in their commitment to the
highest standards in business ethics," said DSA's President Neil Offen.
"By applying for membership in the association and going through a
rigorous approval process, these companies are saying they take their
ethical obligations to their field salesforce and to the ultimate
customer seriously and are willing to make a public pledge to that
effect."
So, did the DSA not see what the California Attorney General views as a "ripoff, scam and pyramid scheme"? Or does the DSA have a different view of what fraud is?
In fact, the DSA is the nation's main defender of business practices that the California law defines as fraud.
- The largest MLM ever prosecuted and successfully shut down as a pyramid scheme by the Federal Trade Commission, Equinox International, was also a DSA member.
- One of the experts who testified on behalf of Equinox, defending
the company against the FTC charges that it was a pyramid scheme, had
been a member of the Direct Selling Association Education Foundation.
- The infamous MLM scam, Trek International, was a DSA member.
- In the landmark legal case against the MLM, Omnitrition, which is regularly referenced for determining when an MLM operates as a pyramid fraud, the DSA defended Omnitrition with an "friend of the court" brief.
DSA is in an all-out campaign to legalize business models and practices which the California statute and laws in other states and countries define as fraudulent pyramid schemes. For DSA members, this is not just about lobbying for favors. It is a fight for their very existence.
- Amway, DSA's largest member, is being prosecuted in England as a pyramid fraud, based on criteria that mirror California's definition of MLM fraud.
- DSA has written its own version of a state law that legalizes the very practices that YTB is being prosecuted for in the state of California. It has managed to get its own law passed in nearly a dozen states. This is achieved with professional lobbying, campaign contributions, and the presentation of a "wolf in sheep's clothing" statute. The DSA bill, which actually guts law enforcement against MLM scams, is called an "anti-pyramid scheme law." Other states have resisted the DSA ruse.
- According
to the wording of the DSA-lobbied bill, schemes that gain all their
revenue from distributors, without any retailing - and each distributor's profit depends on the enrollment of more and more distributors - would be exempt from
the definition of a pyramid scheme. If this law were adopted in California, YTB would be legal there.
- In 2003, DSA sought to get a federal law passed that is the mirror of its state statute. Known as HR 1220, this bill would pre-empt state law, override federal court decisions and negate FTC policies. It would re-define fraudulent MLMs as "legal." The federal bill has so far never gotten out of committee.
- One of the DSA bill's co-sponsors was Congresswoman, Sue Myrick (9th Congressional District, NC) who had been a featured speaker at Amway meetings. Her first candidacy for Congress was largely underwritten by Amway Kingpin, Dexter Yager.
- DSA members, and especially Amway, have poured millions into the current President's administration. In 2001, they were rewarded. The DSA and MLM now enjoy the most MLM-friendly FTC in history. The first chairman appointed by President Bush worked for a lawfirm that represented Amway. Since then, he has worked as a lobbyist for a DSA member. For the last seven years, the FTC has been largely blind and silent toward "pyramid selling schemes."
- In 2008, the DSA succeeded in getting this MLM-friendly FTC to exempt MLM companies from a proposed new FTC rule that would have required MLMs to disclose more financial information to recruits and give recruits more time to decide whether to invest. The change that the DSA gained in the proposed FTC rule means that YTB will not be covered because it is an MLM.
To back up its lobbying, DSA now makes the case that 99% consumer losses in MLMs are not evidence of fraud, unfairness or deception. Rather, it argues, most MLM participants only join to buy products, not to earn money. So, those that do lose money, don't mind their losses. |
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