Federal Trade Commission v. BurnLounge, Inc.

BurnLounge, Inc. operated a multi-level marketing business that offered participants the ability to become “Independent Retailers” of music and other merchandise. Independent Retailers could earn points redeemable for music or merchandise, or they could pay an additional fee to become “Moguls” and earn cash rewards. The Federal Trade Commission filed suit against BurnLounge alleging violation of § 5(a) of the Federal Trade Commission Act (FTCA). Section 5(a) states: “unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” 15 U.S.C. § 45 (a)(1). The operation of a pyramid scheme constitutes an unfair or deceptive act or practice in or affecting commerce for the purposes of § 5(a). See In re Koscot Interplanetary, Inc., 86 F.T.C. 1106 , 1178, 1181 (1975).

BurnLounge, Juan Alexander Arnold (CEO and creator of BurnLounge), and John Taylor (participant in the Burn-Lounge scheme) appeal the district court’s order granting a permanent injunction against BurnLounge’s continued operation based on the court’s finding that Burn-Lounge was an illegal pyramid scheme. BurnLounge and Arnold also appeal the district court’s denial of their motion…