FTC Reports BurnLounge Refund Checks in the Mail

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On June 15, the Federal Trade Commission (FTC) announced that 52,099 checks had been mailed out to consumers who lost money due to an illegal pyramid scheme run by BurnLounge Inc. Consumers should expect to receive a Burn Lounge refund check in their mail soon, and will have until Aug. 14, 2015 to cash their refund. All the consumer refund checks total to close to $1.9 million to be paid by BurnLounge.

In their pyramid scheme lawsuit against the online music company, the FTC alleged that BurnLounge misled countless possible recruits by making these consumers believe that the company was a legitimate multilevel marketing program. The agency further alleges BurnLounge achieved this deception by claiming that participants were likely to turn a profit by operating an online digital music store; however, most of the recruits who participated in the BurnLounge pyramid scheme actually lost money according to the FTC’s complaint.

The FTC originally filed the BurnLounge pyramid scheme lawsuit back in 2007, claiming BurnLounge had sold opportunities to consumers and recruits to operate online digital music stores, which was actually an elaborate ruse covering up an illegal pyramid scheme. A year later, one of the four named defendants spearheading the BurnLounge pyramid scheme agreed to an individual settlement with the FTC and paid $20,000, and agreed to not participate in future pyramid schemes or make false claims of earnings.

A few years later in 2012, the federal court where this pyramid scheme lawsuit took place ordered the remaining named BurnLounge defendants to pay $16.2 million collectively as a form of redress. The court’s decision in this BurnLounge lawsuits also prevents the named defendants from participating in future money making schemes which require compensation for recruitment that is not related to the sale of the marketed product to non-participatory consumers. Furthermore, BurnLounge and defendants are also prohibited from misrepresenting a multi-level marketing or business venture.

BurnLounge attempted to appeal this district court’s ruling in the pyramid scheme lawsuit, but on June 2 of this year the U.S. Court of Appeals for the Ninth Circuit upheld original ruling. According to the Ninth Circuit: “We agree with the district court that BurnLounge was an illegal pyramid scheme … because BurnLounge’s focus was recruitment, and because the rewards it paid in the form of cash bonuses were tied to recruitment rather than the sale of merchandise.”

The claims administrator for the BurnLounge Pyramid refund account has already begun mailing out the thousands of refund checks to eligible consumers. Once received, a consumer will have until Aug. 14 of this year to cash the check before it becomes void.

The BurnLounge Pyramid Scheme Lawsuit is FTC v. BurnLounge, Case No. 2:07-cv-03654-GWFMO, in the U.S. District Court for the Central District of California.