FTC Asks Court to Shut Down Illegal Pyramid Operation

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.

Copies of the legal documents associated with this case are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov/ftc/complaint.shtm. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad.