State, The (Columbia, SC)
July 10, 2007
Author: JASON RYAN email@example.com
A federal judge has ordered online music retailer BurnLounge to turn over its financial records and do away with a major part of its business plan that he called a "classic pyramid scheme."
The New York company agreed to a preliminary injunction with the Federal Trade Commission after government regulators sued BurnLounge in June.
BurnLounge became popular in Columbia after being marketed by local sports and music personalities, including USC broadcaster Todd Ellis and Hootie and the Blowfish.
The injunction issued last week requires BurnLounge to stop paying money to members who recruit other investors and forbids the company from disposing of any assets obtained before June 6.
The company also must put 20 percent of its future profits into an escrow account and turn over accounting and financial records, including records detailing the sales of Web packages and music.
Last month, the company's chief executive resigned after also being sued by the FTC.
Still, "It's business as usual for BurnLounge," company lawyer D.J. Poyfair said Monday. He added BurnLounge is fighting the pyramid-scheme allegations.
BurnLounge sold customizable Web pages that investors could use to sell digital music.
Investors who bought Web page packages for as much as $430 were paid up to $50 for each person they recruited to buy a similar package.
Investors earned additional money when members they recruited sold songs or memberships to others.
For selling a song themselves, retailers earned a nickel.
Now, U.S. District Judge George Wu has ordered BurnLounge to cease paying any money for recruitment -- specifically the highpaying "mogul" program that made BurnLounge popular and lucrative for some members.