BurnLounge entices a Texas State Senator and Lawyer

[Prof]

From 8/14/09 San Antonio Express News:

Wentworth is linked to Web pyramid schemeREADcomments (12)

Express-News AUSTIN — As many as 300 people became participants in a pyramid scheme in 2006-07 at the behest of San Antonio state Sen. Jeff Wentworth, who says he believed the company — which was shut down by the Federal Trade Commission — was a legal marketing firm.

The San Antonio Republican on Thursday said his income tax returns for 2006 show he made less than $1,000 while working as an “independent contractor” for an Internet digital music sales company called BurnLounge.

The FTC shut down BurnLounge in 2007 with a federal lawsuit accusing the company, its chief executive and its top three money-producing promoters of running a pyramid scheme. No criminal charges were brought in the case.

“BurnLounge is operating a pyramid scheme. Such schemes have an intolerable capacity to mislead,” the FTC said in its lawsuit.

“That's news to me,” Wentworth said Thursday.

BurnLounge began in 2005 as a digital music store that allowed people to buy in as retailers for as little at $29.95. The company claimed as many as 50,000 retailers and included associations with celebrities, such as singer Justin Timberlake and basketball star Shaquille O'Neal.

In its lawsuit, the FTC said most of the money for BurnLounge was made selling storefronts to new members rather than selling digital music. To make money from the deal, a retailer had to pay extra to become a “mogul,” who would make a commission by recruiting members.

A mogul could make $10 to $50 for each person recruited, and receive money when those recruits brought in others.

To become a “mogul,” a retailer had to pay $130 to $430, plus an $8 monthly fee. The higher the buy-in, the more profitable recruitment became for the mogul, the FTC said.

Wentworth was an enthusiastic promoter of BurnLounge as a source of legal digital music, according to a 2007 interview he gave to DigitalEntreprenuer magazine.

According to the interview, Wentworth said he was brought into BurnLounge by a lobbyist for the Texas Automobile Dealers Association.

“I have personally recruited 25 to 30 people, who in turn have recruited others,” Wentworth said then. “Now, I have in excess of 300 people that are involved in BurnLounge as a result.”

Wentworth said he now can't remember how many people he recruited or whether he was a retailer or a mogul, but he said it was a small, part-time business he had in 2006.

He said the man who recruited him had been a lobbyist, but wasn't at the time.

Wentworth said his personal financial disclosure report for 2006 — which was filed in June 2007, just 13 days after the FTC filed its lawsuit against BurnLounge — lists him as the self-employed owner of a “digital entertainment download service.”

Wentworth said he did not list BurnLounge on the report because he was an independent contractor.

“Everybody who recruited people to the company made money on the sales. It was a multilevel marketing product that was perfectly legal,” he said. “What's not legal is to promise people that if they come in, they'll make these extraordinary amounts of money.”

Wentworth said some people involved with the company on the East Coast were “promising big returns that were not realistic.” Two of the four men sued by the FTC lived in Dallas and Houston.

In the 2007 interview, Wentworth said: “I believe those who get involved early on in BurnLounge have the potential of generating a significant income in the next few years.”

Wentworth said he suspected his involvement in BurnLounge was brought to attention because he's up for re-election next year.

“This is a three-year-old, part-time, miniscule part of what I did in 2006,” Wentworth said. “It's interesting timing. Not a coincidence in my judgment.”