YTB:Your Travel Business vs California Attorney General
Monday, January 26, 2009 at 04:17PM YTB Inc vs. California Attorney General – September 2009
YTB Inc, also known as Your Travel Business will have the opportunity to defend itself in court in September of 2009. This is the date for the YTB lawsuit being filed by California Attorney General Edmund G Brown.
Regardless of whether the company wins this lawsuit or not, this could very well be the end for YTB in terms of utilizing the network marketing business model. Last year, less than a month before the lawsuit was announced, Scott Tomer, the CEO of YTB Inc announced the move in a filing with the Securities and Exchange Commission.
Apparently there were 18 months of discussion going on between the company and the attorney general regarding California’s laws and the YTB business model. The company claims that these discussions came to a standstill in August, which is why the lawsuit was filed by the Attorney General.
Does YTB’s Business Model Violate California Law?
However, YTB still holds that their network marketing business model is legal and does not violate California law. The company reported to the SEC that it intends to vigorously defend itself against these charges.
The attorney general’s main contention with the business model is based on the amount of revenue generated from the sale of travel vs. the amount of revenue generated from the sale of travel related web sites.
The attorney general charges that the sale of travel is actually a front so that YTB can operate “a gigantic pyramid scheme.” He claims that YTB really makes its money by recruiting people into the scheme on the premise that they can make a lot of money promoting the scheme to others.
As evidence, the attorney general points to YTB’s own finances. In 2007, the company reported revenue of over 141 million dollars for the year. Yet 103 million of that revenue actually came from fees charged to distributors for the ability to sell travel using YTB web sites.
How Does YTB Plan To Defend Itself Against These Allegations?
YTB hasn’t said much other than the fact that they plan to defend themselves. However, you can expect that the company is going to argue that they are in the business to sell travel. They will point to over 400 million dollars in the aggregate retail value of all travel booked on its representatives’ web sites in 2007.
Another possible argument that might be made by the company is that the web site is actually a product itself and the company has the right to be able to make money selling it just like it can make money selling travel.
In addition to the possible franchise business model potentially being announced in 2009, there have also been rumors going around online that the company may be considering another line of products outside of the travel industry. This could help protect the company against future pyramid suits if these products can result in additional revenues that significantly surpass what the company collects from its web site fees.
In any case, starting in September of 2009, we will learn what will result of this case unless of course, there is a settlement deal made before them.
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