Multi-level marketing is decades old, and BurnLounge was one of the first companies to bring it into the Internet age. From 2005 to 2007, BurnLounge executives and speakers told anyone who would listen that opening a digital music store, effectively a franchise of BurnLounge, could be the path to riches.
The BurnLounge music store did produce great wealth—for its founders, who were the top of an illegal pyramid scheme. The money didn’t come from music sales, but from tens of thousands of wannabe digital entrepreneurs who bought into the plan. Of those recruited, 93.84 percent didn’t even recover their initial investment, much less gain the six-figure incomes that BurnLounge execs promised were within easy reach.
The company was mostly shut down shortly after the FTC filed suit in 2007, when BurnLounge was slapped with a court injunction. But it kept fighting in court, losing after an eight-day bench trial was held in 2008. It wasn’t until 2011 that US District Judge George Wu issued his judgment (PDF) that BurnLounge and its officers—Juan Alexander Arnold, John Taylor, Rob DeBoer, and Scott Elliot—had operated a pyramid scheme and deceived consumers.
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