BurnLounge, Inc. was a

multi-level marketing Multi-level marketing (MLM), also called network marketing or pyramid selling, is a controversial marketing strategy for the sale of products or services in which the revenue of the MLM company is derived from a non-salaried workforce selling t ...

online music store A digital music store is a business that sells digital audio files of music recordings over the Internet. Customers gain ownership of a license to use the files, in contrast to a music streaming service, where they listen to recordings withou ...

founded in 2004 and based in

New York City New York, often called New York City or NYC, is the most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the most densely populated major city in the U ...

. By 2006, the company reported 30,000 members using the site to sell music through its network. In 2007, the company was sued by the Federal Trade Commission for being an illegal

pyramid scheme A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly im ...

. The company lost the suit in 2012, and lost appeal in June 2014. In June 2015, the FTC began returning $1.9 million to people who had lost money in the scheme. The company is dormant pending additional appeals.

Business model

BurnLounge was founded in 2004, with offices in

. Its primary business was the BurnLounge

, and it was associated with Orbital Publishing, which produced printed matter for the company. Former CEO Alex Arnold (formerly with

Excel Communications Excel Communications is a now defunct multi-level marketing (MLM) telecommunications company that was at one point America's fifth largest long-distance carrier after AT&T, MCI, Sprint, and Worldcom. Company history Excel was founded in 1988 b ...

and founder and former chairman of NuEWorld.com). Described by

Gartner Gartner, Inc is a technological research and consulting firm based in Stamford, Connecticut that conducts research on technology and shares this research both through private consulting as well as executive programs and conferences. Its clients ...

G2 as a

company, BurnLounge used the term "concentric retail" to describe its business model. The company's site allowed customers to preview and purchase music, and chat through a proprietary client. Customers wishing to sell music through their own custom pages were required to purchase a subscription. Subscription costs varied, and consisted of either an annual fee or an annual fee with an additional monthly charge. These fees only allowed one to redeem sales points for BurnLounge products; participants paid additional fees if they wished to exchange earned sales points for money. A '' Fortune'' article places the commission at five cents per 99-cent download. In 2006 the company stated that nearly 30,000 people had opened BurnLounge storefronts, including several major label musicians. The service provided content supplied by

Muze Founded in 1991, Muze, Inc. was a business-to-business provider of media information, metadata, and digital preview samples that enable search, discovery, and purchase of digital entertainment content. "Muze was founded by Zullo and Trev Huzley i ...

, with early versions of its software provided by

Beatport Beatport is an American electronic music-oriented online music store owned by LiveStyle. The company is based in Denver, Los Angeles, and Berlin. Beatport is oriented primarily towards DJs, selling full songs as well as resources that can be us ...

and SocialIM. Version 0.9 of the software was introduced in October 2005, and version 1.0 was unveiled in Las Vegas on June 9 and 10, 2006. BurnLounge offered only music downloads, but other products such as

audiobook An audiobook (or a talking book) is a recording of a book or other work being read out loud. A reading of the complete text is described as "unabridged", while readings of shorter versions are abridgements. Spoken audio has been available in sch ...

s, video, ring tones, and physical merchandise were said to be planned. Burnlounge 2.0 (or BL2) launched quietly on Friday, April 27, 2007.

FTC pyramid scheme lawsuit

Federal Trade Commission (FTC) filed a lawsuit on June 5, 2007, against specific BurnLounge participants for involvement in a

. The FTC claimed that BurnLounge is a pyramid scheme because the company pays more money for recruiting new store owners than for selling music. The lawsuit claimed that BurnLounge made very little money from the sale of music, and made the vast majority of its money from independent associates (named "moguls") paying between $29.95 and $429.95 a year plus fees, for the right to sell music. The lawsuit also stated that associates were paid a cash reward for recruiting others into the program. One person named in the lawsuit, Rob DeBoer, says that he recruited about 45 other people to open their own BurnLounge sites. Those recruited would then pay a commission on their sales to DeBoer. DeBoer stated that he made almost US$300,000 from BurnLounge. The lawsuit is the result of a year-long investigation into BurnLounge by the state of

South Carolina )'' Animis opibusque parati'' ( for, , Latin, Prepared in mind and resources, links=no) , anthem = "Carolina";" South Carolina On My Mind" , Former = Province of South Carolina , seat = Columbia , LargestCity = Charleston , LargestMetro = G ...

. Others named in the lawsuit include former BurnLounge CEO Alex Arnold, and two Texas men who promoted BurnLounge similarly to DeBoer. The case went before a federal judge in December 2008, and while many of the accusations against the company were dropped by the FTC, on February 29, 2012, an order was issued barring the defendants from operating a pyramid scheme and ordering them to pay some $17 million in damages.

Court ruling

In June 2014, the

U.S. Court of Appeals The United States courts of appeals are the intermediate appellate courts of the United States federal judiciary. The courts of appeals are divided into 11 numbered circuits that cover geographic areas of the United States and hear appeals f ...

unanimously upheld the ruling, declaring BurnLounge to be an illegal pyramid scheme. BurnLounge was considering appeal to the Supreme Court. Multi-level marketing analysts describe the ruling as being likely significant to an FTC investigation of

Herbalife Herbalife Nutrition Ltd., also called Herbalife International, Inc. (with a U.S. subsidiary called Herbalife International of America) or simply Herbalife, is a global multi-level marketing (MLM) corporation that develops and sells dietary su ...

. Herbalife praised the ruling, saying that it clarified that its own business model does not fall under the appellate court's definition of pyramid scheme.

Redress

In June 2015, the FTC began mailing checks to consumers who had lost money in the pyramid scheme. The FTC was mailing 52,099 checks totaling almost $1.9 million. The company is dormant pending additional appeals. As of April 2019, the company's website hosted a teaser promoting BurnLounge 3.0 with the statement, "Get ready", which remained unchanged for over ten years. The site no longer works due to

Adobe Flash Player Adobe Flash Player (known in Internet Explorer, Firefox, and Google Chrome as Shockwave Flash) is computer software for viewing multimedia contents, executing rich Internet applications, and streaming audio and video content created on the A ...

no longer being supported.

References

External links

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Burnlounge Lawsuit
{{Multi-level marketing Companies based in New York City Entertainment companies of the United States Defunct online music stores Defunct multi-level marketing companies Internet services shut down by a legal challenge Retail companies established in 2004 Internet properties established in 2004 2014 disestablishments in New York (state) Defunct online companies of the United States