An appeals court Monday upheld the government’s shutdown of BurnLounge, an online music store, as a pyramid scheme.
The case, followed closely by supporters and detractors of Herbalife, was immediately declared a victory by both.
One part of the case dealt with whether sales to those in a multi-level marketing network count as retail sales to so-called “ultimate users.”
MLM supporters like lawyer Kevin Thompson told Bloomberg that the court stopped short of ruling that commissions from internal sales are illegal.
But that was beside the point, the court said. BurnLounge incentivized recruiting participants, not product sales, making it a pyramid scheme.
There is no requirement that “rewards for recruiting be ‘completely’ unrelated to the sale of products,” the court ruled.
That means “pointing to internal consumption will not be a sufficient defense” for Herbalife, said MLM expert Bill Keep.