Is BurnLounge an Illegal Pyramid?
The FTC certainly thinks so, FTC Asks Court to Shut Down Illegal Pyramid Operation.
In their press release, the FTC alleges
"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."
There a number of interesting points in this scheme. First, the pitch of the business -on line digital musical stores- has just enough weight to make it reasonable. After all, who doesn't want a chance at becoming the next iTunes? Second, as reported by Jason Ryan,
"BurnLounge marketers, including former USC standouts Rob DeBoer and Todd Ellis, promoted BurnLounge Web pages as a way for owners to earn music and cash through the sale of digital music and other BurnLounge franchises, which are priced from $30 to $430. ... So why place these big bets on unconventional investments? Blame the halo effect, said Brent Simpson, a sociology professor at USC who has studied trust. The esteemed status of the salesmen -- established in the classroom, on the ball fields, in the political arena and elsewhere -- translated into financial credibility for potential investors, he said. Some investors also like to identify with the promoter, relating through sports or religion "I can trust these people because they're like me," said Simpson, characterizing their mindsets."
Trusting people without independent verification will provide you with a short ride to financial suicide.
