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.com:: recruited consumers through the Internet, telephone calls, and in-person meetings. The sales pitch represented that participants in BurnLounge.com were likely to make substantial income. BurnLounge.com 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.com compensation program.

The BurnLounge.com 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 Federal Trade Commission - Home 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 Redirect to Secure Web Server. 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.

MEDIA CONTACT:
Claudia Bourne Farrell
Office of Public Affairs
202-326-2181
STAFF CONTACT:
Chris Couillou
FTC Southeast Region
404-656-1353

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Friday, June 15, 2007

We've never been a huge fan of Burnlounge and this week when the Federal Trade Commission asked a court to shut the service down and freeze its assets we thought that our fears had been confirmed.

In our in-box this morning came this detailed rebuttal from Stephen Murray, co-founder, President of Entertainment and Chief Creative Officer of BurnLounge. We're still skeptical, but it seemed worth sharing. In the end the courts will decide.

Burnlounge_logo "Following a hearing on June 8, the Court denied the FTC's request for a Temporary Restraining Order (TRO). The Court's denial of the FTC's request is a significant development. We believe that it supports our contention that BurnLounge has conducted its business lawfully. Nevertheless, we are actively working to understand and address any legitimate issues and concerns that the FTC may have."

BurnLounge and FTC

Q. Why is the company under an Federal Trade Commission (FTC) investigation?

On June 6, 2007, the FTC filed a complaint in the U.S. District Court challenging a portion of the company’s business model. We believe that the complaint does not reflect the reality or substance of our business, and we are working with the government to address their concerns in the hope that this matter will be quickly resolved.

Q. What is the current situation?
Following a hearing on June 8, the Court denied the FTC's request for a Temporary Restraining Order (TRO). The Court's denial of the FTC's request is a significant development. We believe that it supports our contention that BurnLounge has conducted its business lawfully. Nevertheless, we are actively working to understand and address any legitimate issues and concerns that the FTC may have.

Our current business model is based on network marketing. Products are sold through a network of consumers who establish online music stores. While this model has been embraced by many of our retail partners, it has been the source of some criticism. Some other companies using a similar structure have been labeled as “pyramid schemes” and scams. With some companies, this criticism has been fair. That’s why there’s a body of law that exists to regulate this kind of model, to prevent abuse and protect consumers.

Q. Does the company’s business model adhere to the law?

Yes.

Q. How is BurnLounge addressing the situation?

BurnLounge remains committed to strict compliance with all applicable laws and regulations. We honor all obligations made to consumers, retailers, artists, and partners. The company respects the FTC’s interest in enforcing reasonable protection for all individuals; we wouldn’t want it any other way.

It’s important that people look carefully at our model to fully understand how it works. That includes the regulatory agencies charged with protecting consumers. We’re prepared to continue to participate actively in this inquiry. We are absolutely certain that our model will stand up to the most rigorous scrutiny.

BurnLounge is working with retailers, investors, and partners to ensure that our business continues uninterrupted. The founders of this company are working with the FTC to try and resolve any issues and address any concerns that the FTC has with this industry or our business.

Q. What is the current state of business?

The Company's business continues uninterrupted, and we will continue to assert our rights and defend ourselves in subsequent Court hearings. Through its unique and revolutionary business model, BurnLounge continues to afford its customers the opportunity to enjoy sharing their tastes in music and films, while providing an avenue for them to express their entrepreneurial talents.

Q. What is the business model?

BurnLounge has a revolutionary product whose value speaks for itself: software that lets anyone open their own digital download store and connect with friends. A model that allows fans to earn rewards every time they recommend a movie or an album to someone, and in doing so, to become digital retailers. A model that allows our retailers to turn their stores into actual businesses.

With any revolutionary business model, it takes time to educate both the public and the regulatory bodies about its complexities and its benefits. In fact, most BurnLounge users operate their stores and BurnPages at absolutely no cost. We ask for nothing. Our free business model is based on revenue from music and movie downloads. For users who want more features and products, we offer other fee-based packages with extra products such as BurnLounge Presents, BurnLounge University and BurnLounge EventPass.

Q. What do you expect the outcome of the FTC investigation to be?

We believe that we are operating an innovative business that is legal and compliant with all of the applicable laws and regulations. We believe that a rigorous review of our business model will bear out that contention, and we will continue to participate with the government in that review. If there are changes to our operating structure that are warranted and appropriate, we’ll consider them. In the meantime, we will continue to foster this new marketing opportunity for artists, and continue to allow fans to benefit from doing what comes naturally: recommending their favorite music to family and friends.

hypebot: Burnlounge's President Responds To FTC Lawsuit

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