BurnLounge

» see burnlounge.com as it lived, on the wayback machine

~ the last words ~

burnlounge is filed here under music and it belongs under sales. the product was a web page that sold songs, but almost nobody arrived at it by wanting to buy a song. you arrived because someone you already knew sat you down and explained that the music business was about to be rebuilt from underneath and that you could get in at the retail layer for as little as $29.95 a year.

the company incorporated in new york in 2004 and was selling by 2005. juan alexander arnold ran it. the pitch called itself concentric retail, and what it meant in practice was that you bought a package and got a branded storefront full of licensed tracks, earning points whenever anybody bought through your page. basic was $29.95 a year. above it sat exclusive at $129.95 and vip at $429.95, both with another eight dollars a month on top.

then came the part that decided the case. for another $6.95 a month you could become a mogul, and only moguls were allowed to convert their earned points into actual money instead of more music. that single conversion privilege is what turned a slightly overpriced storefront rental into something the federal trade commission would spend seven years litigating.

none of this reached me and none of it could have. turkey had no itunes store until the 2010s and paid digital downloads had close to no market here in 2005, so a multi-level scheme built on top of paid downloads had nothing to stand on. it was a domestic american product sold face to face, in living rooms and hotel function rooms, by people who already had your phone number.

~ the record ~

~ how the money moved ~

the court later put a number on the thing everyone suspected. music sold to actual outside customers accounted for about three percent of burnlounge's income. the other ninety-seven came from participants buying packages, which meant the only reliable way to earn was to find more participants.

around 30,000 storefronts were open by 2006 and the ftc eventually counted more than 56,000 people who had bought in. of everyone who paid the extra fee to become a mogul, 93.84 percent lost money. that figure is exact because it comes out of the company's own records, which is the detail that makes pyramid cases winnable. the accounting proves the shape of the thing better than any witness can.

~ the eight weeks ~

the ftc filed in the central district of california on 6 june 2007 and announced it six days later. at the first hearing on 8 june burnlounge's lawyers asked for more time, and judge george wu set a full hearing for the 19th. rather than fight the injunction the parties stipulated to one in july, and the mogul cash-out was switched off.

the store stayed open. you could still buy a package and still sell music to anybody who wanted music. june revenue had been $476,516. august revenue was $10,880. nothing had changed except the one feature the company had always insisted was incidental, and demand collapsed by ninety-eight percent in two months. the business was over from that point. the litigation took another seven years to say so out loud.

~ the long paperwork ~

scott elliott, one of the individual defendants, settled in june 2007 and gave up twenty thousand dollars. the rest went to trial and lost. the final judgment came on 29 february 2012 and the ftc announced it two weeks later: close to seventeen million dollars. burnlounge and arnold were held liable for $16,245,799 of it, with $620,138 against john taylor and a further $150,000 against rob deboer.

the ninth circuit affirmed on 2 june 2014 in language that left nothing open, agreeing with the district court that burnlounge was an illegal pyramid scheme. the opinion became one of the standard citations for how to tell a real multi-level business from a recruitment chain, and it gets cited in every argument about the industry since. in june 2015 the ftc mailed out $1.9 million in refunds to 52,099 people. against packages that had cost up to $429.95 a year, that works out to around thirty-six dollars each.

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