If you have dreams of becoming the owner of the the next iTunes store, don't count on BurnLounge to give you a leg up. The Federal Trade Commission has recently fingered the digital music store as being more like a pyramid scheme and less like a legitimate digital music retailer, reports Ars Technica.
The FTC is asking a judge to shut down BurnLounge's operations and is accusing it of being "an illegal pyramid operation."
BurnLounge supposedly sells online music stores. You cough up money to buy an online music store and there are various tiered fees, plus a monthly fee and extra incentive fees. Then the selling begins. But it's not about selling the music. It's about selling more stores. That got the FTC involved.
The people who bought the stores didn't make money on the music. The real money was made at the top of the scheme by the people at the bottom signing up new members.
According to the FCC, "BurnLounge provides much larger rewards for recruiting then for sales of digital music and thus provides greater incentives to participants to recruit than to sell music to ultimate users."
BurnLounge's promotional events flagrantly violated the FTC Act by saying pitches like, "Guys, we've made just under $300,000. Todd Ellis' next door neighbor has made $280,000. We've got a dozen people that have made over $100,000."
The FTC found that "the compensation plan used by BurnLounge mathematically dictates that at any particular time the majority of Moguls [those who reap rewards from the network] will spend more money to participate in BurnLounge than they have earned through their involvement with the company."