The FTC filed a complaint in the U.S. District Court for the Central District of California against BurnLounge
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. The sales pitch represented that
participants in BurnLounge were likely to make substantial income. BurnLounge
recruited participants by selling them so-called "product packages,"
ranging 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 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 don't receive substantial income, but lose money,
instead. These practices violate the FTC Act, the agency alleges.
The FTC has asked the court to halt the 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, and 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.
In addition to naming BurnLounge, Inc., a Delaware corporation based in New York
City, the Commission's complaint also names: Juan Alexander Arnold, of Studio
City, California; John Taylor, of Houston, Texas; Rob DeBoer of Irmo, South
Carolina; and Scott Elliott of Forney, Texas.
This case was brought with the invaluable assistance of the Office of the
Attorney General of South Carolina.
Over the last 10 years, the Commission has halted 17 pyramid schemes and has
collected almost $90 million in consumer redress and tens of millions of
additional dollars in suspended judgments.