YourTravelBiz.com International's (YTB) "elaborate pyramid scheme" has been shut down by the State of California's Attorney General Edmund Brown, The Royal Gazette can reveal.

In a statement issued yesterday, Mr. Brown announced that he had completed an agreement forcing YTB to stop the "deceptive marketing of its largely unprofitable travel websites" and prohibiting the company from charging consumers almost $500 to recruit others into its "endless chain scheme".

This follows a report in yesterday's edition of the Gazette, which revealed that two of YTB's board members quit with Dr. Timothy Kaiser deciding not to run for another term and Clay Winfield resigning. The company also posted a first-quarter 2009 net loss of $1.9 million after reporting a $4.5 million full-year loss for 2008.

At least 700 Bermudians have already signed up with YTB, including Independent MP and former United Bermuda Party leader Wayne Furbert, who set up his own affiliated business last year, and Kenneth Minors, based in Lexington, Kentucky, who runs Minors Travel, a franchise of YTB Travel, of Illinois, as reported by the paper.

But YTB CEO Scott Tomer believes the agreement will prove to be for the good of the company.

"We believe the agreement with the State of California improves our business model and that as a result YTB will emerge a better company," he said. "This agreement will help to further secure the future for our valued sales force.

"The improvements we will be making are compatible with the upcoming franchise model while maintaining the commission and override structure for our reps."

Mr. Brown said: "YTB falsely promised customers they could get rich quick by selling travel online. In reality, customers were reeled into an elaborate pyramid scheme and most never earned a dime. Today's settlement ends YTB's pyramid scheme by arming consumers with hard facts and eliminating the need to sign up for this largely unprofitable website."

In August 2008, Mr. Brown filed a lawsuit against YTB, its affiliates and founders to end the "pyramid scheme" and stop YTB's "false and misleading marketing campaign".

Yesterday's stipulated judgment, filed with the Los Angeles County Superior Court, achieved that by prohibiting false and deceptive marketing, requiring that YTB provide consumers with information in a clear and conspicuous way about how difficult it is to make money by selling travel through the company and stopping the company from charging almost $500 to recruit others into the scheme and requiring that new member recruitment be done using a free online demonstration.

It also limits income from "downstream sellers" (those who have been recruited and who have become recruiters themselves), eliminates perks and other incentives for joining and makes it easier for members to quit.

The statement said that YTB had "lured consumers into its travel business with false promises of wealth and deceptive marketing", charging customers $449.95 to buy a website and $49.95 a month to operate it, totalling more than $1,000 in the first year of operation.

It said that many people signed up to sell travel or to obtain travel discounts, but they quickly found it "virtually impossible to make money selling travel", citing a plane ticket from Los Angeles to New York yielding $3 in profit and an international ticket from San Francisco to London net $6 in profit, as examples.

According to the Office of the California Attorney General, in 2007 the annual median income for those selling travel was $39, less than one month's cost to operate the website, with the majority of consumers who purchased YTB websites making no money through the sale of travel, and many losing money through continued website operations.

By contrast, it said that recruiting others to buy websites and getting those purchasers to recruit others to do so, was much more profitable, as members earned money based on how many websites they sold, as well as how many websites those they recruited sold. These multi-level sales, combined with the required purchase of the $449.95 website, formed the foundation of YTB's "pyramid scheme", it concluded.

The settlement also prohibits YTB from stating or implying that their travel rates are comparable with those of travel booking sites, such as Expedia or Orbitz and requires YTB to open up its operations to scrutiny by the Attorney General's Office, which will have access to all YTB marketing materials, events, meetings, gatherings and presentations to ensure the company is complying with the agreement and California law.

YTB will also be required to register as a franchise with the California Department of Corporations as required by law and to pay $1 million in penalties, costs and restitution to California victims who filed complaints against YTB.

In filings with the SEC since Mr. Brown's 2008 lawsuit, YTB stated that there was "substantial doubt about the company's ability to continue as a going concern", while the company revealed losing $5.9 million from its operations in 2008 and the first quarter of 2009.

According to the Office of the California Attorney General, the number of Internet websites sold decreased 75 percent in first quarter 2009 compared to first quarter 2008, and the total number of website owners decreased 53 percent in first quarter 2009 versus the first quarter 2008.