October 17, 2008
Former USC football star Rob DeBoer will go on trial Tuesday (12/9/08) to defend his position as the top distributor for BurnLounge, which was declared an illegal pyramid scheme by the FTC and shut down in 2007. DeBoer, who was not part of BurnLounge corporate, is accused of deceptively promoting the BurnLounge program. Other top promoters and corporate members have also been sued by the FTC.
BurnLounge sold music downloads via an internet website. However, the large majority of revenue to the company and commissions paid to distributors came from the $430 fee charged for the website itself, which was referred to as an "online music store". The FTC declared it a scheme where most of the income was derived from recruiting new people into the business of selling music downloads, not from the sale of the actual music.
A local news story can be read here:
http://www.thestate.com/local/story/612167.html
The FTC docket related to this case can be found here:
http://www.ftc.gov/os/caselist/0623201/index.shtm
Commentary:
There are two interesting aspects to this case: First, that a high level distributor is being named in the FTC action and individually tried. This always begs the question, How many levels down from the apex of the national distributor hierarchy do you stop becoming the perpetrator and become the victim? Is it one level? Ten levels? The top 5% of earners? What?
This reminds me of a case back in the early '90s. I was contacted by the D.A. in Fresno, CA to serve as their expert witness in an action against an elderly couple, let's call them Bob and Betty, who had just held a hotel meeting (about 50 attended) promoting a scheme called Marathon. They found me from an exposé of Marathon I had just published, which was indeed an illegal pyramid. But Bob and Betty didn't know that! In fact, they were simply following the lead of their upline sponsors, who likely did what their sponsor told them to do. When I asked the D.A. where Bob and Betty fell in the chain, he didn't even know. I asked him if any of the existing reps who attended with their prospects would also be prosecuted, he responded no because they were Bob and Betty's "victims"! I was now even more confused. So, the reps in the audience could have been much more experienced, with larger downlines and be even higher in the chain that Bob and Betty, but now the criteria between perp and victim seemed to be who happened to be hosting the meeting that night. I didn't take that case.
I'm not saying Mr. DeBoer isn't a perp. My point is that being a distributor for a company doesn't exempt you from being declared one, and what defines you as such seems to be a very wide, grey line. All the more reason to have a clear understanding of what defines a legal direct sales business as opposed to an illegal pyramid scheme.
Which leads us to interesting aspect #2: This is yet another in a long line of cases that seems to clearly define the act of making a profit from, and/or paying downline commissions on, the sale of the business, or more specifically the business's website, as being indicative of an illegal recruitment based pyramid scheme. Selling, profiting from, and/or paying commissions on lotions, vitamins, drinks, travel, telecom services and yes, even music downloads, is all perfectly fine. But you could carpet the entire surface of the Los Angeles Memorial Coliseum with the legal red flag created by profiting from and/or paying commissions on the website, or any sales and marketing tool, that only those pursuing the income opportunity would purchase.
Len Clements
Founder & CEO
MarketWave, Inc.
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