Facts

The Federal Trade Commission (FTC) brought an action against BurnLounge, its chief executive officer and chairman of the board of directors Juan Alexander Arnold, and its business promoters John Taylor, Rob DeBoer and Scott Elliott in connection with their on-line digital music stores.

PLAINTIFF'S CONTENTIONS:
The FTC contended that BurnLounge operated a pyramid scheme in connection with the advertising, marketing and sale of opportunities to operate on-line digital musical stores. It allegedly did this by promoting participation in BurnLounge through its compensation system, which primarily compensated participants for their recruitment of new participants rather than for the sale of products or services. As a result, a substantial amount of participants allegedly lost money. This alleged pyramid scheme violated Section 5(a) of the FTC Act (15 U.S.C. Section 45(a)). The FTC sought injunctive and other equitable relief.

Result

Following a bench trial, the court found that BurnLounge, Arnold, Taylor and DeBoer had violated Section 5 of the FTC Act and that injunctive and monetary relief was warranted. Following appeal and remand, an amended judgment was entered against BurnLounge and Arnold in the amount of $16,246,915.75 and against DeBoer for $908,263.50. Those 52,099 consumers who lost money in the pyramid scheme will receive checks totaling approximately $1.9 million. Elliott settled with the FTC in 2008.