Your Travel Biz to pay $1 million in fines and restitution

California Attorney General Edmund G. Brown Jr. announced California has reached a “settlement” in its suit against YTB International, Inc. YTB (Your Travel Biz) has agreed to pay $1 million in penalties, costs, and restitution to California victims who filed complaints against YTB.

In addition to the fines and restitution, the agreement requires YTB to:

1. End false and misleading marketing and provide consumers with information about how difficult it is to make money through YTB.

2. Provide consumers with information in a clear and conspicuous manner about typical income earned by website purchasers, typical costs of operations, the number of people who quit, and the number of people who have not earned commissions, allowing consumers to see most YTB travel sellers make no money, and “in fact rack up high costs.”

3. No longer charge consumers to recruit others. YTB must establish a free demonstration website for recruitment.

4. Require 60 percent of recruiters’ sales come from persons who are not themselves recruiters or suffer severely reduced income from recruiting.

5. Halt issuing travel credentials in California and advertising that travel discounts, perks and tax-write offs are available by purchasing a website.

6. Halt stating or implying that YTB travel rates are comparable with those of travel booking sites such as Expedia or Orbitz.

7. Halt providing any recruitment bonuses or compensation based on the recruiter’s purchase of a website.

8. Immediately make quitting YTB easy via fax, email, or telephone.

In addition, YTB has agreed to open its operations to scrutiny by the Attorney General to ensure the company is complying with the agreement and California law.

Earlier this month, two more board members, Clay Winfield and Dr. Timothy Kaiser, (a total of four since the California suit was filed) have resigned from YTB. The resignations follow a statement from YTB’s independent auditor criticizing the company’s internal financial controls.

Since the 2008 lawsuit was filed by California, YTB finances have gone precipitously downhill. YTB International reported a net loss from operations for the first quarter of 2009 of $1.9 million. In its first-quarter report to the Securities and Exchange Commission YTB reported a 20 percent drop of active Travel Site Owners (TSOs) in YTB in the quarter. Net revenues totaled $21.8 million in the quarter, compared to $42.7 million in the first quarter of 2008.

If that news wasn’t bad enough for YTB, on May 14th, Illinois filed suit against YTB, seeking to have YTB cease operations in Illinois, its corporate home. Illinois is also seeking penalties of $50,000 on each count (2) per per violation plus full restitution to more than 5,700 Illinois based TSOs. While its likely that they won’t be fined $50,000 per count per violation, even at $5,000, that’s more than their net worth of about $43M, and that doesn’t include the restitution.

In their 2009 first quarter report, I think YTB summed up their business prospects accurately saying,

The Company’s loss from operations, declining active TSO count, working capital deficiency, uncertainties surrounding the Company’s pending litigation, and the general downturn in the economy raise substantial doubt about the Company’s ability to continue as a going concern.

Tagged as: California, fines, Illinois lawsuit, penalties, restitution, settlement, YTB