Federal Trade Commission v. Burnlounge Inc et al

Filing 437

FINAL JUDGMENT AND ORDER FOR PERMANENT INJUNCTION AND OTHER EQUITABLE RELIEF AGAINST DEFENDANTS BURNLOUNGE, INC., JUAN ALEXANDER ARNOLD, JOHN TAYLOR AND ROB DEBOER filed by Judge George H Wu (MD JS-6. Case Terminated) (pj)

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MADE JS-6

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UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION

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______________________________

)
FEDERAL TRADE COMMISSION, )
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Plaintiff
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v.
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BURNLOUNGE, INC., et al.,
)
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Defendants.
)
______________________________ )

Case No. CV 07-3654 GW FMOx
FINAL JUDGMENT AND ORDER
FOR PERMANENT INJUNCTION
AND OTHER EQUITABLE RELIEF
AGAINST DEFENDANTS
BURNLOUNGE, INC., JUAN
ALEXANDER ARNOLD, JOHN
TAYLOR AND ROB DEBOER

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On June 6, 2007, the Plaintiff, Federal Trade Commission (“FTC” or

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“Commission”) filed a Complaint for Injunctive and Other Equitable Relief against

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BurnLounge, Inc., Juan Alexander Arnold, John Taylor, Rob DeBoer and Scott

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Elliot pursuant to Section 13(b) of the Federal Trade Commission Act (“FTC

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Act”), 15 U.S.C. § 53(b), alleging that they had engaged in deceptive acts or

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practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a). A

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settlement was agreed upon between the Commission and Defendant Scott Elliot,

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and the Court entered a stipulated final order for permanent injunction and other

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equitable relief against him (Docket No. 248) on June 16, 2008.

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As to the remaining defendants, the matter proceeded to a nine-day bench

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trial between December 9, 2008 and December 22, 2008. On March 30, 2009, the

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Court held a hearing to allow the parties to present closing arguments. On July 1,

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2011, the Court issued a Statement of Decision (Docket No. 431) finding by a

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preponderance of evidence that BurnLounge, Inc., Juan Alexander Arnold, John

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Taylor, and Rob DeBoer had violated Section 5 of the FTC Act, and that

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permanent injunctive and equitable monetary relief was warranted pursuant to 15

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U.S.C. §§ 45 and 53. The Court directed Plaintiff to resubmit an amended

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proposed order conforming to the Court’s Statement of Decision.
Based on the record established in this matter and for reasons set forth in the

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Court’s Statement of Decision, it is hereby ORDERED, ADJUDGED AND

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DECREED:
DEFINITIONS

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For purposes of this Final Judgment and Order for Permanent Injunction and

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Other Equitable Relief (hereinafter “Final Order”), the following definitions shall

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apply:

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1.

“Business opportunity” means:
(a)

A commercial arrangement in which the seller solicits a
prospective purchaser to enter into a new business;

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(b)

The prospective purchaser makes a required payment; and

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(c)

The seller, expressly or by implication, orally or in writing,

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represents that the seller or one or more designated persons

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will:

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(i)

Provide locations for the use or operation of equipment,

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displays, vending machines, or similar devices, owned,

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leased, controlled or paid for by the purchaser;

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(ii)

Provide outlets, accounts, or customers, including, but

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not limited to, Internet outlets, accounts, or customers,

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for the purchaser’s goods or services; or

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(iii)

Buy back any or all of the goods or services that the
purchaser makes, produces, fabricates, grows, breeds,
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modifies, or provides, including but not limited to

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providing payment for such services as, for example,

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stuffing envelopes from the purchaser’s home.

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2.

"Business Venture" means any written or oral business arrangement,

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however denominated, that is a business opportunity, franchise, or that

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consists of the payment of any consideration in exchange for: (a) the

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right or means to offer, sell, or distribute goods or services (regardless

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of whether identified by a trademark, service mark, trade name,

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advertising or other commercial symbol); and (b) more than nominal

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assistance to any person or entity in connection with or incident to the

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establishment, maintenance, or operation of a new business, or the

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entry by an existing business into a new line or type of business.

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3.

subscriber, or natural person.

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"Consumer" means an actual or potential purchaser, customer,

4.

"Defendant BurnLounge" means Defendant BurnLounge, Inc., and its
successors and assigns.

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5.

“Defendant Arnold” means Defendant Juan Alexander Arnold.

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6.

“Defendant Taylor” means Defendant John Taylor, whose legal name
is John Marcus Taylor.

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name is Robert Edwards DeBoer.

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8.
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“Individual Defendants” means Defendants Arnold, Taylor and
DeBoer.

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“Defendants” means Defendants BurnLounge, Inc., Juan Alexander
Arnold, John Taylor and Rob DeBoer.

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“Defendant DeBoer” means Defendant Rob DeBoer, whose legal

10.

The term "document" is synonymous in meaning and equal in scope to

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the usage of the term in Federal Rule of Civil Procedure 34(a), and

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includes writings, drawings, graphs, charts, photographs, audio and
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video recordings, electronically stored information, computer records,

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and other data compilations from which information can be obtained

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and translated, if necessary, through detection devices into reasonably

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usable form. A draft or non-identical copy is a separate document

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within the meaning of the term.

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11.

“Franchise” means any continuing commercial relationship or

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arrangement, whatever it may be called, in which the terms of the

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offer or contract specify, or the franchise seller promises or represents,

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orally or in writing, that: (a) the franchisee will obtain the right to

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operate a business that is identified or associated with the franchisor’s

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trademark, or to offer, sell, or distribute goods, services, or

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commodities that are identified or associated with the franchisor’s

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trademark; (b) the franchisor will exert or has authority to exert a

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significant degree of control over the franchisee’s method of

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operation, or provide significant assistance in the franchisee’s method

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or operation; and (c) as a condition of obtaining or commencing

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operation of the franchise, the franchisee makes a required payment or

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commits to make a required payment to the franchisor or its affiliate.

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12.

“Franchisee” means any person who is granted a franchise.

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13.

“Franchise seller” means a person that offers for sale, sells, or
arranges for the sale of a franchise.

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participates in the franchise relationship.

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15.

"Material fact" means any fact likely to affect a person's choice of, or
conduct regarding, goods, services, or business ventures.

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“Franchisor” means any person who grants a franchise and

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"Multi-level Marketing Program" means any marketing program in

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which participants pay money to the program promoter in return for

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which the participants obtain the right to: (a) recruit additional
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participants, or have additional participants placed by the promoter or

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any other person into the program participant’s downline, tree,

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cooperative, income center, or other similar program grouping; (b) sell

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goods or services; and (c) receive payment or other compensation, in

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whole or in part, based upon the sales of those in the participants

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downline, tree, cooperative, income center or similar program

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grouping.

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17.

is not currently engaged, or a new line or type of business.

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“New business” means a business in which the prospective purchaser

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“Participating in any prohibited marketing scheme” includes, but is

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not limited to, promoting, marketing, advertising, offering for sale, or

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selling, or assisting others in the offering for sale or selling the right to

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participate in, the prohibited marketing scheme, as well as acting or

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serving as an officer, director, employee, salesperson, agent,

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shareholder, advisor, consultant, independent contractor, or

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distributor, or acting as a speaker or spokesperson on behalf of, any

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prohibited marketing scheme.

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"Prohibited Marketing Scheme” means a pyramid sales scheme, Ponzi

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scheme, chain marketing scheme, or other marketing plan or program

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in which participants pay money or valuable consideration in return

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for which they obtain the right to receive rewards for recruiting other

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participants into the program, and those rewards are unrelated to the

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sale of products or services to ultimate users. For purposes of this

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definition, “sale of products or services to ultimate users” does not

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include sales to other participants or recruits or to the participants’

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own accounts.

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20.

“Trademark” means trademarks, service marks, names, logos, and
other commercial symbols.
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ORDER

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I. Prohibited Marketing Schemes

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IT IS THEREFORE ORDERED that each Defendant and their officers,

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agents, servants, employees, and attorneys, and those persons in active concert or

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participation with them who receive actual notice of this Final Order by personal

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service or otherwise, whether acting directly or through any entity, corporation,

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subsidiary, division, or other device, are permanently restrained and enjoined from

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engaging, participating, or assisting in any manner or capacity whatsoever, in any

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Prohibited Marketing Scheme.
II. Prohibited Representations

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IT IS FURTHER ORDERED that, in connection with the advertising,

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promotion, offering for sale, or sale, or assisting others in the advertising,

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promotion, offering for sale, or sale of any Multi-level Marketing Program or

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Business Venture, each Defendant and their officers, agents, servants, employees,

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and attorneys, and those persons in active concert or participation with them who

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receive actual notice of this Final Order by personal service or otherwise, whether

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acting directly or through any entity, corporation, subsidiary, division, or other

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device, are permanently restrained and enjoined from making, expressly or by

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implication, orally or in writing, any false or misleading statement or

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misrepresentation of material fact including, but not limited to, the following:

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A.

Misrepresentations about the amount of sales, income, or profits that a

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participant in such Multi-level Marketing Program or Business Venture can

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reasonably expect to achieve;

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B.

Misrepresentations about the amount of sales, income, or profits that a

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participant or participants in such Multi-level Marketing Program or Business

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Venture have actually achieved;

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C.

Misrepresentations about the profitability of participating in such

Multi-level Marketing Program or Business Venture
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D.

Misrepresentations that a person who participates in such Multi-level

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Marketing Program or Business Venture can reasonably expect to recoup his or her

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investment;

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E.

in such Multi-level Marketing Program or Business Venture;
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Misrepresentations of the legality of such Multi-level Marketing

Program or Business Venture; and
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Misrepresentations of any material aspect of the performance,

efficacy, nature, or central characteristic of any good or service offered for sale
through such Multi-level Marketing Program or Business Venture.
III. Prohibition Against Material Omissions

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Misrepresentations of any reward offered to or earned by participants

IT IS FURTHER ORDERED that, in connection with the advertising,

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promotion, offering for sale, or sale, or assisting others in the advertising,

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promotion, offering for sale, or sale of any Multi-level Marketing Program or

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Business Venture, each Defendant and their officers, agents, servants, employees,

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and attorneys, and those persons in active concert or participation with them who

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receive actual notice of this Final Order by personal service or otherwise, whether

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acting directly or through any entity, corporation, subsidiary, division, or other

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device, are hereby permanently restrained and enjoined from failing to disclose,

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clearly and conspicuously, to any participant or prospective participant in any

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Multi-level Marketing Program or Business Venture to whom any earnings, profits

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or sales volume claims have been made:

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A.

The number and percentage of participants in the Multi-level

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Marketing Program or Business Venture who have earned, profited or sold at least

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the amount represented; and

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B.

The number and percentage of participants in the Multi-level

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Marketing Program or Business Venture who have made a profit through their

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participation in the Multi-level Marketing Program or Business Venture.
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IV. Equitable Monetary Relief

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IT IS FURTHER ORDERED that:

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A.

Judgment is hereby entered in favor of the Commission and against

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Defendants BurnLounge and Arnold, jointly and severally, in the amount of

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sixteen million two hundred forty-five thousand seven hundred ninety-nine dollars

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and seventy cents ($16,245,799.70), to be utilized to directly reimburse

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consumers who were injured by the BurnLounge pyramid scheme, except as

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provided for in Section V.A. The judgment shall be paid to the Commission within

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ten (10) days of entry of this Final Order. Full payment of this sum shall fully

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satisfy all monetary claims asserted by the Commission against Defendants

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BurnLounge and Arnold in this matter. Within ten (10) days of entry of this Final

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Order, in partial satisfaction of the judgment, Defendants Arnold and BurnLounge

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shall do the following:
1.

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Defendant Arnold shall transfer to the Commission his interest

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in 1430 N. Cahuega Partners, LP, and all rights and title to that

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interest; and
2.

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Defendant BurnLounge shall:
a.

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Transfer to the Commission its membership interest in

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Beatport LLC, and all rights and title to that membership

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interest; and
b.

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Transfer to the Commission all funds owned by

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BurnLounge or held on its behalf in banks or financial

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institutions, or otherwise. These funds shall include, but

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not be limited to, the $72,076.68 and $50,267.00 and any

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interest earned thereon, that Defendant BurnLounge was

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ordered to preserve, pursuant to the Court’s Order of

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August 4, 2008 [Docket No. 268].

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B.

Judgment is hereby entered in favor of the Commission and against
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Defendant DeBoer in the amount of one hundred fifty thousand dollars

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($150,000.00) as disgorgement. Defendant DeBoer shall disgorge that amount to

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the Commission within ten (10) days of entry of this Final Order. Full payment of

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this sum shall fully satisfy all monetary claims asserted by the Commission against

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Defendant DeBoer in this matter.

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C.

Judgment is hereby entered in favor of the Commission and against

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Defendant Taylor, in the amount of six hundred twenty thousand one hundred

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thirty-nine dollars and sixty-four cents ($620,139.64) as disgorgement. Defendant

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Taylor shall disgorge that amount to the Commission within ten (10) days of entry

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of this Final Order. Full payment of this sum shall fully satisfy all monetary claims

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asserted by the Commission against Defendant Taylor in this matter.

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D.

The judgments entered pursuant to this Section are equitable monetary

relief, and are not fines, penalties, punitive assessments or forfeitures.
E.

Defendants shall relinquish all dominion, control, and title to the

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funds or assets paid or transferred pursuant to this Final Order to the fullest extent

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permitted by law.

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F.

Pursuant to Section 604(1) of the Fair Credit Reporting Act, 15 U.S.C.

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§ 1681b(1), any consumer reporting agency may furnish consumer reports

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concerning the Individual Defendants to the FTC, which shall be used for purposes

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of collecting and reporting on any delinquent amount arising out of this Order.
V. Administration of Funds Collected

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IT IS FURTHER ORDER THAT:

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A.

Any and all funds collected by Plaintiff pursuant to this Final Order,

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shall be deposited into a fund administered by the Commission or its agent to be

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used for consumer redress and any attendant expenses for the administration of any

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redress fund. Defendants shall have no right to contest the manner of distribution

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chosen by the Commission. The Commission in its sole discretion may use a

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designated agent to administer consumer redress. If the Commission determines in
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its sole discretion that redress to purchasers is wholly or partially impracticable, or

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any funds collected from Defendants remain after the redress process is completed,

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then any funds not used for redress or expenses attendant to the redress fund shall

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be deposited in the United States Treasury as disgorgement.

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B.

Defendants shall cooperate fully to assist the Commission in

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identifying consumers who may be entitled to redress pursuant to this Final Order.

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The cooperation shall include, but not be limited to, providing Plaintiff a list of

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each consumer who purchased a VIP, Exclusive or Basic package, and at any time

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was a BurnLounge Mogul. As to each such consumer, Defendants shall provide

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consumer contact information including the consumer’s name, member and retailer

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identification numbers, address, telephone numbers and e-mail addresses. This

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consumer contact information shall be provided to Plaintiff within twenty (20)

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days of entry of this Final Order in the form of a searchable electronic document

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formatted in Microsoft Excel [.xls or .xlsx] or Microsoft Access [.mdb or .mdbx],

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and supplied on CD-R CD ROM optical disks formatted to ISO 9660

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specifications, DVD-ROM optical disks for Windows-compatible personal

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computers, or USB 2.0 flash drives, or in such other electronic form as may be

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agreed to in writing by Plaintiff.
VI. Compliance Monitoring

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IT IS FURTHER ORDERED that, for the purpose of monitoring and
investigating compliance with any provision of this Final Order:
A.

Within ten (10) days of receipt of written notice from a representative

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of the Commission, Defendants each shall submit additional written reports, which

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are true and accurate and sworn to under penalty of perjury; produce documents for

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inspection and copying; appear for deposition; and provide entry during normal

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business hours to any business location in each Defendant’s possession or direct or

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indirect control to inspect the business operation;

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B.

In addition, the Commission is authorized to use all other lawful
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means, including but not limited to:
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Obtaining discovery from any person, without further leave of

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court, using the procedures prescribed by Fed. R. Civ. P. 30, 31,

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33, 34, 36, 45 and 69;
2.

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Posing as consumers and suppliers to Defendants, their

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employees, or any other entity managed or controlled in whole

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or in part by any Defendant, without the necessity of

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identification or prior notice; and

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C.

Defendants shall permit representatives of the Commission to

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interview any employer, consultant, independent contractor, representative, agent,

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or employee who has agreed to such an interview, relating in any way to any

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conduct subject to this Final Order. The person interviewed may have counsel

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present.

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Provided however, that nothing in this Final Order shall limit the

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Commission’s lawful use of compulsory process, pursuant to Sections 9 and 20 of

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the FTC Act, 15 U.S.C. §§ 49, 57b-1, to obtain any documentary material, tangible

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things, testimony, or information relevant to unfair or deceptive acts or practices in

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or affecting commerce (within the meaning of 15 U.S.C. § 45(a)(1))
VII. Compliance Reporting

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IT IS FURTHER ORDERED that, in order that compliance with the
provisions of this Final Order may be monitored:
A.

For a period of five (5) years from the date of entry of this Final

Order,
1.

Each Individual Defendant shall notify the Commission of the

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following:

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a.

Any changes in such Defendant’s residence, mailing

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addresses, and telephone numbers, within ten (10) days

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of the date of such change;
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b.

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Any changes in such Defendant’s employment status

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(including self-employment), and any change in such

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Defendant’s ownership in any business entity, within ten

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(10) days of the date of such change. Such notice shall

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include the name and address of each business that such

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Defendant is affiliated with, employed by, creates or

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forms, or performs services for; a detailed description of

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the nature of the business; and a detailed description of

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such Defendant’s duties and responsibilities in
connection with the business or employment; and

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c.

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aliases or fictitious names;

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Any changes in such Defendant’s name or use of any

2.

Defendant BurnLounge shall notify the Commission of any

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changes in structure of Defendant BurnLounge or any business

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entity that Defendant BurnLounge directly or indirectly

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controls, or has an ownership interest in, that may affect

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compliance obligations arising under this Final Order, including

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but not limited to: incorporation or other organization; a

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dissolution, assignment, sale, merger, or other action; the

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creation or dissolution of a subsidiary, parent, or affiliate that

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engages in any acts or practices subject to this Final Order; or a

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change in the business name or address, at least thirty (30) days

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prior to such change, provided that, with respect to any

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proposed change in the business entity about which Defendant

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BurnLounge learns less than thirty (30) days prior to the date

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such action is to take place, Defendant BurnLounge shall notify

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the Commission as soon as is practicable after obtaining such

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knowledge.
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B.

One hundred eighty (180) days after the date of entry of this Final

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Order and annually thereafter for a period of five (5) years, Defendants each shall

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provide a written report to the FTC, which is true and accurate and sworn to under

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penalty of perjury, setting forth in detail the manner and form in which they have

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complied and are complying with this Final Order. This report shall include, but

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not be limited to:
1.

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For each Individual Defendant:
a.

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Such Defendant’s then-current residence address, mailing
addresses, and telephone numbers;

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b.

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Such Defendant’s then-current employment status

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(including self-employment), including the name,

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addresses, and telephone numbers of each business that

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such Defendant is affiliated with, employed by, or

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performs services for; a detailed description of the nature

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of the business; and a detailed description of such

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Defendant’s duties and responsibilities in connection

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with the business or employment; and
c.

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Any other changes required to be reported under
Subsection A of this Section.

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2.

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For all Defendants:
a.

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A copy of each acknowledgment of receipt of this Final

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Order, obtained pursuant to the Section titled

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“Distribution of Order”;
b.

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Subsection A of this Section.

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Any other changes required to be reported under

C.

Each Defendant shall notify the Commission of the filing of a

bankruptcy petition by such Defendant within fifteen (15) days of filing.
D.

For the purposes of this Final Order, Defendants shall, unless
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otherwise directed by the Commission’s authorized representatives, send by

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overnight courier all reports and notifications required by this Final Order to the

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Commission, to the following address:
Associate Director for Enforcement
Federal Trade Commission
600 Pennsylvania Avenue, N.W., Room NJ-2122
Washington, D.C. 20580
RE: FTC v. BurnLounge, Inc.

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Provided that, in lieu of overnight courier, Defendants may send such reports

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or notifications by first-class mail, but only if Defendants contemporaneously send

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an electronic version of such report or notification to the Commission at:

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[e-mail].
E.

For purposes of the compliance reporting and monitoring required by

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this Final Order, the Commission is authorized to communicate directly with each

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Defendant.
VIII. Record Keeping Provisions

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IT IS FURTHER ORDERED that, for a period of eight (8) years from the

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date of entry of this Final Order, Defendants, in connection with advertising,

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offering, marketing, promotion or sale of any multi-level marketing program or

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business venture and their agents, employees, officers, corporations, and those

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persons in active concert or participation with them who receive actual notice of

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this Final Order by personal service or otherwise, are hereby restrained and

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enjoined from failing to create and retain the following records:

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A.

Accounting records that reflect the cost of goods or services sold,

revenues generated, and the disbursement of such revenues;
B.

Personnel records accurately reflecting: the name, address, and

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telephone number of each person employed in any capacity by such business,

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including as an independent contractor; that person's job title or position; the date

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upon which the person commenced work; and the date and reason for the person's

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termination, if applicable;
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C.

Customer files containing the names, addresses, phone numbers,

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dollar amounts paid, quantity of items or services purchased, and description of

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items or services purchased, to the extent such information is obtained in the

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ordinary course of business;

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D.

Complaints and refund requests (whether received directly, indirectly,

or through any third party) and any responses to those complaints or requests;
E.

Copies of all sales scripts, training materials, advertisements, or other

marketing materials; and
F.

All records and documents necessary to demonstrate full compliance

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with each provision of this Final Order, including but not limited to, copies of

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acknowledgments of receipt of this Final Order required by the Sections titled

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“Distribution of Order” and “Acknowledgment of Receipt of Order” and all reports

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submitted to the FTC pursuant to the Section titled “Compliance Reporting.”
IX. Distribution of Order

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IT IS FURTHER ORDERED that, for a period of five (5) years from the

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date of entry of this Final Order, Defendants shall deliver copies of the Final Order

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as directed below:

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A.

Defendant BurnLounge must deliver a copy of this Final Order to

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(1) all of its principals, officers, directors, and managers; (2) all of its employees,

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agents, and representatives who engage in conduct related to the subject matter of

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the Final Order; and (3) any business entity resulting from any change in structure

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set forth in Subsection A of the Section titled “Compliance Reporting.” For

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current personnel, delivery shall be within five (5) days of service of this Final

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Order upon Defendant BurnLounge. For new personnel, delivery shall occur prior

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to them assuming their responsibilities. For any business entity resulting from any

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change in structure set forth in Subsection A of the Section titled “Compliance

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Reporting,” delivery shall be at least ten (10) days prior to the change in structure.

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B.

Individual Defendant as Control Person: For any business that an
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Individual Defendant controls, directly or indirectly, or in which such Defendant

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has a majority ownership interest, such Defendant must deliver a copy of this Final

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Order to (1) all principals, officers, directors, and managers of that business; (2) all

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employees, agents, and representatives of that business who engage in conduct

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related to the subject matter of the Final Order; and (3) any business entity

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resulting from any change in structure set forth in Subsection A.2 of the Section

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titled “Compliance Reporting.” For current personnel, delivery shall be within five

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(5) days of service of this Final Order upon such Defendant. For new personnel,

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delivery shall occur prior to them assuming their responsibilities. For any business

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entity resulting from any change in structure set forth in Subsection A.2 of the

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Section titled “Compliance Reporting,” delivery shall be at least ten (10) days prior

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to the change in structure.

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C.

Individual Defendant as employee or non-control person: For any

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business where an Individual Defendant is not a controlling person of a business

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but otherwise engages in conduct related to the subject matter of this Final Order,

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such Defendant must deliver a copy of this Final Order to all principals and

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managers of such business before engaging in such conduct.

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D.

Defendants must secure a signed and dated statement acknowledging

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receipt of the Final Order, within thirty (30) days of delivery, from all persons

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receiving a copy of the Final Order pursuant to this Section.
X. Acknowledgment of Receipt of Order

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IT IS FURTHER ORDERED that each Defendant, within five (5)

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business days of receipt of this Final Order as entered by the Court, must submit to

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the Commission a truthful sworn statement acknowledging receipt of this Final

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Order.

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XI. Independence of Obligations
IT IS FURTHER ORDERED that each of the obligations imposed by
this Final Order is independent of all other obligations under the Final Order, and
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that the expiration of any requirements imposed by this Final Order shall not affect

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any other obligation arising under this Final Order.
XII. Costs and Attorneys Fees

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IT IS FURTHER ORDERED that each party to this Final Order bear

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its own costs and attorneys fees incurred in connection with this action.
XIII. Continued Jurisdiction

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IT IS FURTHER ORDERED that this Court shall retain jurisdiction

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of this matter for purposes of construction, modification, and enforcement of this

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Final Order.

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Dated: 25th of July, 2011

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______________________________
Hon. George H. Wu
United States District Judge

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Submitted by:

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_/s/Chris M. Couillou
Chris M. Couillou, Esq.
[e-mail]
Counsel for the Plaintiff
Federal Trade Commission
225 Peachtree Street, Suite 1500
Atlanta, GA 30303
[phone] (voice)
[phone] (fax)

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