BurnLounge Promoter Settles FTC Complaint

A promoter of a digital music service accused by the U.S. Federal Trade Commission of running an illegal pyramid scheme has settled the agency's complaints and will pay a fine of US$20,000, the FTC announced Tuesday.

The FTC announcement comes a year after BurnLounge said it had reached an agreement with the agency to stop the "network marketing" portion of its business that was targeted by the FTC. The FTC's settlement announced Tuesday is with Scott Elliott of Forney, Texas, one of four individuals who was named in the FTC's June 2007 complaint against BurnLounge.

Elliott was one of three promoters of BurnLounge's network marketing programs named in the civil complaint filed by the FTC. Also named were the company and its chairman and CEO, Juan Alexander Arnold.

BurnLounge reportedly ceased operations some time after the FTC complaint was filed. Its Web site was not functioning Tuesday. The lawyer working for the company at the time of the FTC complaint was unavailable for comment on Tuesday.

The FTC accused the music service and other defendants of promising that participants in its network marketing program could make substantial income by operating online digital music stores. Participants paid $29.95 to $429.95 a year, but BurnLounge's compensation program provided payments primarily for participants who recruited new members, not for selling products or services, the FTC said.

The defendants operated an illegal pyramid scheme, made deceptive earnings claims and failed to disclose that most consumers who invest in pyramid schemes would lose money, the FTC said in its complaint.

In July 2007, Judge George Wu of the U.S. District Court for the Central District of California, Western Division, ordered a halt to the company's network marketing efforts and froze Elliott's assets, pending a trial.

The settlement bars Elliott from participating in prohibited marketing schemes, including pyramid schemes. It also prohibits him from misrepresenting his earnings in any multilevel marketing program or business venture, the FTC said.

The settlement enters a judgment of $117,710.69, the entire amount earned by Elliott through BurnLounge, but the judge reduced the amount to $20,000, based on his ability to pay. If the court finds that Elliott lied about his finances, the entire amount will be due, the FTC said.

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