International Law

BurnLounge is a Pyramid Scheme

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"An operator who used deceptive earnings promises to recruit consumers for a multi-level marketing operation that was a pyramid scheme has agreed to settle Federal Trade Commission charges that the operation was illegal and violated federal law.

The settlement bars the defendant from participating in any pyramid scheme or other prohibited marketing scheme, bars false earning claims, and requires him to give up $20,000 in ill-gotten gains.

In June 2007, the FTC charged that BurnLounge and its principals recruited consumers claiming that participants were likely to make substantial income operating on-line digital music stores. BurnLounge recruited participants by selling them so-called "product packages," ranging in price from $29.95 to $429.95 per year.

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 new participants, not for selling products or services, which the FTC alleges would result in a substantial percentage of participants losing money.

The FTC alleged that the defendants operated an illegal pyramid scheme, made deceptive earnings claims, and failed to disclose that most consumers who invest in pyramid schemes lose money."

And the essence of the fraud, according to the FTC Pyramid complaint, is:

"BurnLounge provides much larger rewards for recruiting than for sales of digital music and thus provides greater incentives to participants to recruit than to sell music to ultimate users."

Now read this pitch from BurnLounge:

"If you build a community that sells a few movies and sells a few games and sells a few downloads, you will have a license to print money.

Don't take my word for it, go ask Blockbuster what they made on $3.95 off 1,000 stores.

J.T. made $50,000 two weeks ago.

He's going to make probably $700,000 this year, and he's a good old boy from Texas that can't read."

I love the juxtaposition between Blockbuster and the mythical J.T. from Texas - a good old boy no smarter or capable that you or me. (Course the fact that Blockbuster was developed by one of the shrewder business minds, now in trouble because of Netflix, and the music industry is owned by iTunes doesn't seem to have bothered the purchasers.)

Full post as published by Misleading Advertising Law on July 01, 2008 (boomark / email).