Last week, the music-distribution company Burnlounge, which calls itself a “fan-driven download community” but resembles a multi-level marketing enterprise in many ways, was sued by the Federal Trade Commission for being an illegal investment scheme. The State reports that the business was particularly popular in Columbia, S.C.:
The commission accuses BurnLounge of running a pyramid scheme because the company paid more money for recruiting new store owners than for selling music.
Operators earned bonuses up to $50 for recruiting two new operators and selling two albums a month, while paying 50 cents per album sold, the complaint said.
The lawsuit said promoters, including DeBoer, misrepresented how much they had earned.
“Guys, we’ve made just under $300,000. Todd Ellis’ next door neighbor made $280,000. We’ve got a dozen people that have made over $100,000,” DeBoer is quoted as saying at a recruitment meeting, according to FTC documents obtained by The State.
The company’s compensation plan “mathematically dictates” most sellers would spend more money to stay active in BurnLounge than they would earn, the FTC said.
DeBoer has stood by his income estimates. A hearing for the FTC’s suit against BurnLounge will be held in Los Angeles later this month.
While we haven’t been approached by any BurnLounge types yet (and we’re guessing that, we have to admit that anyone who fell for these peoples’ pitches has to be a little bit gullible, or at least not up on their Billboard reading. Surely if the people claiming riches could make six-figure salaries by simply selling CDs–for 50 cents on the album!–the industry would have made a concerted effort to migrate more of its merchandising over to BurnLounge?