The Federal Trade Commission has shut down the BurnLounge multi-level marketing program after determining that it is in fact an illegal pyramid scheme that misled consumers about the amount of money that could be made through its program. The FTC has ordered BurnLounge to pay $17 million in restitution to consumers who fell for this scam. According to the FTC website, the company had attracted more than 56,000 consumers to participate in its multi-level marketing program and had been making very misleading claims about how much they could earn.
How BurnLounge Worked
BurnLounge was promoted as an innovative way to sell digital music. The company recruited consumers by telling them they had the potential to earn a huge income just by selling music through its program. Music sales actually only accounted for a small percentage of sales. The organization charged fees ranging from $29.95 to $429.95 plus monthly fees to “investors” who wanted to buy into the program. Participants received commissions from selling music and albums, but the only way to earn a significant income was by recruiting others into the plan and charging them a certain fee.
Why the BurnLounge Program was Illegal
The FTC has determined that the BurnLounge program is actually an illegal pyramid scheme because it fails to disclose that the bulk of earnings are dependent on recruiting others. The company also made deceptive earnings claims, promoting BurnLounge as a simple way to make money just by selling digital music. The truth is that the top earners would only make money by recruiting others and charging the $29.95 to $429.95 plus monthly fees for participation. In this case, the compensation received for recruitment is independent of the sale of the actual product to customers who are not participating in the program. The FTC determined that BurnLounge misrepresented its sales figures, income potential from the program, actual profitability, and the legality of its operations.
Identifying Pyramid Scams Like BurnLounge
Pyramid scams can be difficult to distinguish from legitimate multi-level marketing programs because the companies behind them can be very good about making misleading claims and reporting income potential. If the money you make is based primarily on the number of people in your downline – and not on the sales of product to consumers outside of the program – then it is probably a pyramid scam. Take your time to research the company, talk to other distributors and participants about their experience, and make sure you understand what penalties and fees you may be subject to if you don’t meet your monthly or quarterly earnings goals.