Illegal Pyramid Scheme.

The Federal Trade Commission Act, § 5(a) [FTCA; 15 U.S.C. §45(a)(1)] states that “unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.” In that context, a marketing company offered participants the ability to become independent retailers of music and other merchandise as well as earn points redeemable for music or merchandise. In the alternative, participants could pay an additional fee and earn cash rewards. The Federal Trade Commission filed suit against the marketing company. The federal trial court granted a permanent injunction against the company, and the company appealed. The Ninth Circuit found the company had an “illegal pyramid scheme in violation of the FTCA because [the marketing company’s] focus was recruitment, and because the rewards it paid in the form of cash bonuses were tied to recruitment rather than the sale of merchandise.” (Federal Trade Commission v. Burnlounge, Inc. (Ninth Cir.; June 2, 2014) (Case No.’s 12-55926, 12-56197, 12-56228).)