According to this story on HypeBot, Loudersoft’s favorite online music retailer BurnLounge is, as predicted, changing its business model and moving away from its MLM past. This comes as no surprise as the company comes under fire and intense scrutiny from the Federal Trade Commission for allegedly operating a large-scale pyramid scheme. Under the new model, BurnLounge plans to do affiliate marketing not unlike other online retailers such as Amazon, giving users the tools to build their own online stores and offer commissions strictly based on sales.

What everyone is wondering: what happens to all that money they already took in from people who bought packages on which commissions were being earned? Nobody knows yet, but the writing is on the wall — my guess is that, should the FTC find them guilty of operating a pyramid scheme, a requirement to refund people who invested on the front end would get worked through. Even though BurnLounge is working to change its model and its image, historical data on companies who have been found guilty of being involved in pyramid schemes frequently end up being forced to reimburse investors. No judgment has been made against the company as yet, though several investors/store owners remain under investigation by the Federal Trade Commission for allegedly inflating sales figures. Earlier this week, CEO Alex Arnold resigned from BurnLounge and was replaced by Grant D. Johnson, a board member and early BurnLounge investor.

PRESS RELEASE – New York, NY, June 21, 2007 – BurnLounge, the world’s first fan driven digital download community, today announced a simplification of its business model that will eliminate the network marketing element of its business while providing greater business benefit for entrepreneurial members of the BurnLounge community.

The company intends to focus on its free service and will deliver increased rewards per sale. BurnLounge will continue to build strong partnerships and high-margin product lines providing a viable business for its members and artists. The free service is comprised of BL2, the software that enables anyone to open up their own download store and become a digital retailer; and BurnPages, a personal web page with customizable widgets.

“Despite our strong disagreement with the Federal Trade Commission’s complaint against the network marketing portion of the business, BurnLounge has voluntarily decided to make this bold move to show our commitment to our artists, partners, and independent retailers who have supported us from the beginning,” said Grant D. Johnson, chairman and chief executive officer, BurnLounge.

Johnson added, “Network marketing was a unique channel to promote our products, but not integral to the future success of the company and its retailers. We took this strategic action to benefit the greater BurnLounge community.”