When I first heard of Burnlounge last summer one of the first things I thought was "pyramid scheme." Apparently the Federal Trade Commission has come around to thinking the same thing. On June 6, 2007, the FTC filed a complaint in the U.S. District Court for the Central District of California against BurnLounge, Inc. The complaint charges that BurnLounge sold opportunities to operate on-line digital music stores that was, in fact, an illegal pyramid scheme. The agency is seeking a permanent halt to the illegal pyramid practices as well as other illegal practices alleged in the complaint.
According to the FTC, BurnLounge recruited consumers through the Internet, telephone calls, and in-person meetings and the sales pitch represented that participants in BurnLounge were likely to make substantial income. The agency says that BurnLounge recruited participants by selling them so-called "product packages", ranging from $29.95 to $429.95 per year. The FTC also alleges that more expensive packages purportedly provided participants with an increased ability to earn rewards through the BurnLounge compensation program. The BurnLounge compensation program primarily provided payments to participants for recruiting of new participants, not on the retail sale of products or services, which the FTC alleges would result in a substantial percentage of participants losing money.
The FTC specifically alleges that the defendants operate an illegal pyramid scheme, make deceptive earnings claims, and fail to disclose that most consumers who invest in pyramid schemes do not receive substantial income, but lose money, instead. The agency believes these practices violate the FTC Act.
The FTC has asked the court to halt the alleged deceptive practices and misrepresentations and to freeze the defendants assets, pending a trial, to preserve them for consumer redress. At a hearing on the FTC's request for a temporary restraining order, on June 8, 2007, BurnLounge's attorneys asked for more time to respond fully. U. S. District Court Judge George Wu ordered that a full hearing on the FTC's request for a preliminary injunction and asset freeze be held on June 19, 2007, after which he will rule on the FTC's requests.