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June 17, 2007|David Colker

The pitch: Run your own online record store

The opportunity: BurnLounge Inc. gives those who sign up the chance to operate their own little iTunes-like service from which they can sell music downloads for rewards that are sometimes cash.

The charges: The Federal Trade Commission alleges that the operation is an illegal pyramid scheme in which early investors profit from the fees paid by later investors. Most participants end up losing money, the agency said. In a court document, the chief executive of BurnLounge was quoted as saying in a pitch meeting: "J.T. made $50,000 two weeks ago. He's going to make probably $700,000 this year, and he's a good old boy from Texas that can't read." This month the agency asked the U.S. District Court in Central California to halt the alleged pyramid practices.

BurnLounge's response: In a statement, the company said its operation was "legal and compliant with all of the applicable laws and regulations. We believe that a rigorous review of our business model will bear out that contention."

-- David Colker

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