California Atty. Gen. Jerry Brown on Thursday reached a legal settlement with a Midwestern Internet travel business that the state had accused of running "an elaborate pyramid scheme."
The company, YTB International Inc. of Wood River, Ill., agreed to pay $1 million in penalties, attorney costs and restitution to California consumers who had filed complaints with the state.
YTB, which also operates as YourTravelBiz.com, didn't admit to any wrongdoing in agreeing to settle a lawsuit filed in August in Los Angeles County Superior Court.
The settlement, Brown said, would stop what he described as deceptive sales practices. It also would prohibit the company from charging customers $450 each to buy a personalized website and about $50 a month to operate it. Few buyers profited from the arrangement, and annual individual income from the sale of travel averaged only $39 in 2007.
"YTB falsely promised customers they could get rich quick by selling travel online," Brown said. "In reality, customers were reeled into an elaborate pyramid scheme, and most never earned a dime."
The settlement, he said, spells out to potential customers the cost of the program and makes it easier for them to quit. It also clearly separates YTB's travel sales from a multiple-level-marketing network in which people make money by recruiting other sellers.
In a filing with the Securities and Exchange Commission, YTB reported a loss of $1.9 million for the first three months of the year. Revenue for the quarter ended March 31 dropped 49% to $21.8 million.
An independent audit at the end of 2008 expressed "substantial doubt about our company's ability to continue as a going concern," YTB said.
Chief Executive Scott Tomer predicted that the settlement could help YTB to "emerge a better company" by updating its franchise model while maintaining an effective sales incentive program.