ADVERTISING COMPLIANCE SERVICE

BULLETIN #646

ALLEGED PYRAMID SCHEME OPERATOR SETTLES FTC CHARGES

MULTI-LEVEL MARKETING OPERATION

According to FTC, an operator used deceptive earnings promises to recruit consumers for a multi-level marketing (MLM) operation that was a pyramid scheme. That operator agreed to settle FTC charges that the operation was illegal and violated federal law. The settlement–

bars defendant from taking part in any pyramid scheme or other prohibited marketing scheme,
bars false earning claims, and
requires him to give up $20,000 in allegedly ill-gotten gains.

OPERATOR AND PRINCIPALS RECRUITED CONSUMERS: FTC

In June 2007, FTC charged that BurnLounge and its principals recruited consumers claiming that participants were likely to make substantial income operating on-line digital music stores. BurnLounge recruited participants by selling them so-called "product packages," ranging in price 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 new participants, not for selling products or services. FTC alleged that this would result in a substantial percentage of participants losing money.

FTC: DEFENDANTS OPERATED AN ILLEGAL PYRAMID SCHEME

FTC alleged that defendants operated an illegal pyramid scheme, made deceptive earnings claims, and failed to disclose that most consumers who invest in pyramid schemes lose money.

FEDERAL DISTRICT COURT

A federal district court ordered a halt to the allegedly deceptive practices and froze defendant's assets, pending a trial, to preserve them for consumer redress. This settlement ends the litigation with defendant Scott Elliott.

WHAT SETTLEMENT DOES

The settlement bars Elliott from participating in or assisting others in participating in barred marketing schemes, including pyramid schemes. It bars misrepresentations about earnings in any multi-level marketing program or business venture. The settlement enters a judgment of $117,710.69. This is the entire amount earned by Elliott through BurnLounge. That judgment is suspended subject to a payment of $20,000 based on his limited ability to pay.

FTC's VOTE

FTC's vote to accept the settlement was 4-0. The case was filed in the U.S. District Court for the Central District of California.

NOTE: A stipulated final judgment and order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent orders have the force of law when signed by the judge.

LAWYER's REFERENCE SERVICE

FTC v. BurnLounge, Inc., et al., United States District Court for the Central District of California, Western Division, FTC File No. 062 3201, July 1, 2008.

# # #

Volume XXVIII
Issue 14
July 21, 2008
Pages 23-24

Advertising Compliance Service is a REFERENCE COMPENDIUM of JLCom Publishing Co., L.L.C.

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