Matrix scheme: Difference between revisions

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{{Short description|Type of financial fraud}}

A '''matrix scheme''', also known as a Matrix Site, Elevator Scheme, Escalator Scheme or Ladder Scheme, is a [[business model]] <ref name =oftpress>{{cite web | url = http://www.oft.gov.uk/News/Press+releases/2005/161-05.htm | title=Office of Fair Trading Press Release | accessdate=2006-08-05}}</ref> involving the exchange of money for a certain product with a side bonus of being added to a waiting list for a product of greater value than the amount given. <ref name=oftpress/> Matrix schemes are also sometimes considered similar to [[Ponzi scheme|Ponzi]] or [[Pyramid Scheme|pyramid]] schemes. <ref name =msn1>{{cite web | url = http://msnbc.msn.com/id/3078957 | title=$150 plasma TV site faces lawsuit | accessdate=2006-08-05}}</ref> Such schemes are claimed to be legitimate by site supporters, though they are regarded as illegal lotteries at times <ref name = msn1/> and have been called unsustainable by the [[Office of Fair Trading]]. <ref name =oftpress/>

{{EngvarB|date=January 2014}}

{{Use dmy dates|date=January 2014}}

A '''matrix scheme''' (also known as a '''matrix sale''' or '''site''', and as a '''hellevator''', '''excavator''' or '''ladder scheme''') is a [[business model]] involving the exchange of money for a certain product with a side bonus of being added to a waiting list for a product of greater value than the amount given.<ref name=oftpress>{{cite web|url=http://www.oft.gov.uk/news/press/2005/161-05 |title=Matrix Website Scheme stopped by Office of Fair Trading |access-date=5 August 2006 |url-status=dead |archive-url=https://web.archive.org/web/20070314233701/http://www.oft.gov.uk/news/press/2005/161-05 |archive-date=14 March 2007 }}</ref> Matrix schemes are also sometimes considered similar to [[Ponzi scheme|Ponzi]] or [[Pyramid scheme|pyramid]] schemes.<ref name =msn1>{{cite web | url = http://www.nbcnews.com/id/3078957 | archive-url = https://web.archive.org/web/20140106134324/http://www.nbcnews.com/id/3078957 | url-status = dead | archive-date = 6 January 2014 | title=$150 plasma TV site faces lawsuit | website = [[NBC News]] | access-date=5 August 2006}}</ref> They have been called "unsustainable" by the United Kingdom's [[Office of Fair Trading]].<ref name =oftpress/> A matrix scheme is also an example of an 'exploding queue' in [[queueing theory]].

==History==

The first known matrix scheme hasis widely beenbelieved acceptedto asbe EZExpo.com, which started the popularity of Matrixmatrix Schemesschemes in 2002. <ref name =msn1/> By 2003 more than 200 matrix schemes were in operation, including one which was owned byhad the same peopleowner as the payment processor Stormpay[[StormPay]] (TymGlobal). Subsequently, both TymGlobal and StormpayStormPay were accused to beof running an illegal Ponzi scheme .<ref name = leaf>{{cite web | url = httphttps://www.theleafchroniclepixyrs.com/appsmlm-software-development.php| archive-url = https:/pbcs/web.archive.dllorg/article?AID=web/2006020820180210194900/NEWS01http:/602080335/1002 www.pixyrs.com/mlm-software-development.php| titleurl-status = Thedead| Leafarchive-date Chronicle= 10 February 2018| accessdatetitle = 2006-08mlm business | access-date = 10 August 2006}}</ref> StormpayStormPay later claimed to be independent of TymGlobal, and they nostopped longer acceptaccepting matrix schemes as customers. Although many have since ceased trading, some schemes are still known to be operationaloperating aroundworldwide. theThe worldpayment processor, StormPay, is no longer trading.

==Operation==

{{Section citations needed|date=July 2023}}

The operation of matrix schemes varies, though they often operate similar to Ponzi schemes. <ref name =msn2>{{cite web | url = http://msnbc.msn.com/id/3078976 | title=$150 for a plasma TV? A bad bet | accessdate=2006-08-05}}</ref> To move upward in the list, a person must wait for new members to join or refer a certain number of people to the list. This is accomplished through purchasing a token product of marginal value: usually e-books, cell phone boosters, screen savers, or shareware CDs. When a pre-defined number of people have purchased the token product the person currently at the top of the list receives their reward item, and the next person in the list moves to the top. The rewards for those at the top of the matrix list are usually high-demand consumer electronics, such as portable [[digital audio player]]s, plasma and high-definition [[television]] sets, laptop [[computers]], and [[cellular phone]]s.

The operation of matrix schemes varies, though they often operate similarly to pyramid or Ponzi schemes.<ref name="msn2">{{cite web | url = https://www.nbcnews.com/id/wbna3078976 | title=$150 for a plasma TV? A bad bet | website=[[NBC News]] | date=28 January 2003 | access-date=5 August 2006}}</ref> Some of the former participants of these schemes consider them to be a form of [[confidence trick]], although others are happy with their purchase.

The operation of matrix schemes varies, though they often operate similar to Ponzi schemes. <ref name =msn2>{{cite web | url = http://msnbc.msn.com/id/3078976 | title=$150 for a plasma TV? A bad bet | accessdate=2006-08-05}}</ref> To move upward in the list, a person must wait for new members to join or refer a certain number of people to the list. This is accomplished through purchasing a token product of marginal value: usually e-books, cell phone boosters, screen savers, or sharewareother software CDs/DVDs. When a pre-defined number of people have purchased the token product, the person currently at the top of the list receives their reward item, and the next person in the list moves to the top. The rewards for those at the top of the matrix list are usually high-demand consumer electronics, such as portable [[digital audio player]]splayers, plasma and high-definition [[television]] sets, laptop [[computerslaptop]]s, and [[cellular phone]]scellphones. Reaching the point on the list where one receives the expensive goods is termed "cycling".

In many cases, the token product alone could not be reasonably sold for the price listed, and as such legal experts claim that regardless of what is said, the real product being sold is the "reward" in question in those situations. Steven A. Richards, a lawyer who represents multi-level marketing companies for Grimes & Reese in Idaho Falls, Idaho, said there often aren’t clear legal tests for Ponzi schemes. But if the product sold has no value or very little value, and consumers wouldn’t buy it without the attached free gift, the scheme probably runs afoul of federal and state laws. <ref name = msn2/>

In many cases, the token product alone could not be reasonably sold for the price listed, and as such legal experts claim that, regardless of what is said, the real product being sold is the "reward" in question in those situations. In these cases, the operator could be charged with running a gambling game or failing to supply ordered products. Steven A. Richards, a lawyer who represents [[multi-level marketing|multi-level marketing (MLM)]] companies for Grimes & Reese in Idaho Falls, Idaho, saidhas therestated that often aren’tthere are no clear legal tests for Ponzi schemes. But if the product sold has no value or very little value, and consumers wouldn’twouldn't buy it without the attached free gift, the scheme probably runs afoul of federal and state laws. <ref name = msn2/>

The “Matrix List” by which the sites receive their name would be what is known as a straight-line matrix, or 1 by X matrix. This is similar to many MLM’s that use Y by X matrix’s to fill a down-line.

The “Matrix"Matrix List”List" by which the sites receive their name would be what is known as a straight-line matrix, or 1 one-by -X matrix. This is similar to many MLM’sMLMs that use Y -by -X matrix’smatrices to fill a down-line.

For example, one situation may be a 1 by 10 matrix for a PS2 (which was quite common). In such a matrix the site would usually sell an e-book for $50 to be placed on the list. After 9 additional people purchased a spot the 1st person would receive either a PS2 or cash value equivalent and is removed from the list. The person who had been 2nd would move up to the first spot and an additional 10 people would have to purchase in order for this person to receive their PS2. It is this orderly movement which has also given the name “Elevator Scheme” to these sites as people would move up the elevator (escalator, ladder) to the top at which they would then “cycle” out of the matrix.

For example, one situation may be a 1 one-by -10 matrix for a PS2video (whichgame wasconsole quite(a common reward). In such a matrix the site would usually sell an e-book for $50 to be placed on the list. After 9nine additional people purchased a spot, the 1stfirst person would receive either a PS2video game console (or cash value equivalent) and iswould be removed from the list. The person who had been 2ndsecond would move up to the first spot and an additional 10 people would have to purchase spots in order for thisthat person to receive theira PS2console. It is this orderly movement which has also given the name “Elevator"elevator Scheme”scheme" to these sites, as people would move up the "elevator" (escalator, ladder) to the top at which they would then “cycle”"cycle" out of the matrix.

In such a matrix, 9 out of 10 or 90% of all customers would never receive their reward item as eventually the matrix must reach a point by which it will be nearly impossible for new people added to the list to reach the top. Supporters claim that additional revenue streams from advertising are used to keep the lists moving. However, detractors claim that it is impossible to generate enough outside revenue. If the entire world were to join the list, 90% of the world would be unable to cycle if the site did not draw sufficient alternate revenue streams. Adding more people to the list does not change the fact that the majority would receive nothing without these streams.

In such a matrix, 9 out of 10, or 90% percent, of all customers wouldwill nevernot receive theirthe reward item, asbecause eventuallythe rules of the matrixscheme mustare reachthat aone pointreward byis whichissued itfor willevery be10 nearlycustomers impossiblethat forjoin. new(The peoplefact addedthat the reward is issued to the customer at the top of the list todoesn't reachchange the topproportion of rewards given to customers signed up.) Supporters claim that additional revenue streams from advertising are used to keep the lists moving. However, detractors claim that it is impossible to generate enough outside revenue. If the entire world were to join the list, 90% percent of the world would be unable to cycle if the site did not draw sufficient alternate revenue streams. Adding more people to the list does not change the fact that the majority would receive nothing without these streams.

Additionally, the amount of time needed before a given individual will receive the product in question is often mistaken. In a matrix in which 10 people are required before it will cycle, the first person to join only needs 9 additional sign ups, but the second person needs 18 additional sign ups, 8 more for the person above him, and then 10 more for himself. The third person on the list likewise needs 27 additional signups, 7 for the person on top of the list, 10 for the person directly above him, and then 10 for himself. And then the number of people required continues to grow for each new person joining the list. For the 10th person to cycle it would require 100 people total, and 1000 for the 100th, and so on.

Additionally, the amount of time needed before a given individual will receive the product in question is often mistaken. In a matrix in which 10 people aremust requiredsign up before it will cyclecycling, the first person to join only needs 9nine additional sign -ups to cycle, but the second person needs 18 additional sign -ups,: 8eight more for the person above himthem, and then 10 more for himselfthemself. The third person on the list likewise needs 27 additional signups,: 7seven for the person on top of the list, 10 for the person directly above himthem, and then 10 for himselfthemself. And then theThe number of people required continues to grow for each new person joining the list. For the 10th person to cycle ita wouldtotal requireof 100 people total,would andhave to sign up, 1000 for the 100th, and so on.

Through this process, the matrix scheme generates substantial profit for its organiser. At the time of its popularity, for example, a PlayStation 2 cost a maximum of $299. After selling 10 $50 e-books, the organiser could make $500, and could purchase a PS2 for $299 to send to the first bidder while retaining a $201 of capital in return. But the schemer must take in consideration the actual price of an e-book which could be around $10. Finally, the buyer would have a profit of $101 (=201-10×10) This same process could be repeated every time the matrix cycles; if the matrix cycled 10 times, the organiser would have sold $5000 worth of e-books, of which $2990 would have been spent on 10 PS2s, leaving them with a revenue of $2010, and a profit of $1010.

==In queueing theory==

A matrix scheme is easily represented as a simple M/M/1 queue within the context of [[queueing theory]]. In such a system there is a Markovian arrival, Markovian service, and one single server.<ref>F. S. Hiller and G. J. Lieberman. Introduction to Operations Research. McGraw-Hill, New York, 1995</ref> In the standard matrix queue, service rates are a function of arrival rates since the time to cycle out of the queue is based on the entry fee into the matrix from arriving members. Also, since members move through the matrix in single file, it is easy to associate the single server.

The basic premise of [[queueing theory]] is that when arrival rates equal or exceed service rates, overall waiting time within the queue moves towards infinity.<ref>Hiller and Lieberman</ref>

The basic formulation includes three formulae. The traffic intensity, ρ, is the average arrival rate (λ) divided by the average service rate (μ):

<math>\rho = \lambda / \mu</math>

The mean number of customers in the system (N):

<math>N = \rho / (1 - \rho)</math>

And the total waiting time within the queue (T):

<math>T = 1 / (\mu - \lambda )</math>

It is possible to see that as arrival rates rise towards service rates, the total waiting time (T) and mean number of customers in the system (N) will move towards infinity.<ref name =oftpress2>{{cite web | url=http://www.eventhelix.com/RealtimeMantra/CongestionControl/m_m_1_queue.htm

| title=M/M/1 Queueing System| access-date = 3 March 2007}}</ref> Since service time can never exceed the arrival time in the standard matrix, and total waiting time can only be defined if service times exceed arrival times, the only way for the matrix queue to reach stability is for outside income sources to exceed those being entered into the system.

==Legality==

Currently there are no laws specifically naming matrix schemes illegal in the US. However, the US [[Federal Trade Commission]] has issued warnings to the public about these sites. Additionally, the US [[Federal Trade Commission]] and the UK [[Trading Standards]] have issued warnings to the public regarding the ease with which these models can be manipulated for fraudulent purposes. Many of the original matrix sites, including EZExpo.com, are no longer in operation; some of them closed down while defending civil lawsuits. In 2003 EZExpo and several payment processors were sued in the civil courts for running an illegal lottery in the state of California, with the payment processors abetting the scam.<ref>{{cite web | url =http://appellatecases.courtinfo.ca.gov/search/case/dockets.cfm?dist=0&doc_id=371626 | title = California Courts -– AppelateAppellate Court Case Information -Docket Entries| accessdateaccess-date = 6 August 2005-08-06}}</ref> <ref>{{cite web | url =http://wagelaw.typepad.com/wage_law/2006/05/prop_64_cases_t.html | title = Wage Law: Prop 64 Cases To Be Argued | accessdateaccess-date = 6 August 2005-08-06}}</ref><ref>{{cite web | url = http://www.diaz-law.com/diazlaw/2005/05/prop_64_to_the_.html | title = The Antitrust Monitor: Prop 64 to the Rescue for Neovi, PaySystems, and PayPal But Not for Ginix| accessdateaccess-date = 6 August 2005| url-08status = dead| archive-url = https://web.archive.org/web/20070310050844/http://www.diaz-law.com/diazlaw/2005/05/prop_64_to_the_.html| archive-date = 10 March 2007| df = dmy-06all}}</ref> However, the civil case is still ongoing. One result of the lawsuit is that those payment processors and some others no longer accept matrix schemes as customers. Currently, no legal precedent exists regarding the matrix scheme in the US.

While detractors of matrix schemes contend that the sites and business models are illegal, in America there are no laws naming the schemes as illegal, and no rulings stating that the business model operates outside of law. There are, however, some challenges currently in the court system. In addition, the U.S. [[Federal Trade Commission]] and the UK. [[Trading Standards]] have issued warnings to the public about the sites, stating that due to the ease by which these models can be manipulated for fraudulent purposes, care should be taken and research done on the scheme in question prior to purchasing from them with the intent on receiving the list gift. The rewards for entering into a successful matrix scheme are substantial. However, several matrix sites have shut down whilst defending lawsuits, such as the civil action taken against the EZExpo.com. {{fact}}

TheIn the UK., the Office of Fair Trading, however, has declared some of them to be illegal. On 1 July 1st, 2005, the Office of Fair Trading in England declared that two matrix schemes were a form of illegal lotterysites, pulsematrix.com and phones4everyone (at themobilematrix.com)., <refwere namedeclared =oftpress2>{{citeto webbe |running urla =http://www.oft.gov.uk/News/Press+releases/2005/118-05.htmform |of titleillegal =lottery. Website schemesThese offeringtwo 'free'sites electronicpromptly gadgetsclosed stoppeddown byas OFT|part accessdateof =a 2005-07-01}}</ref>settlement Inagreement with the UKOffice someof matrixFair sitesTrading may(OFT). claim theyOther aresimilar amatrix privatesites lottery,also andused thusthis operatedecision legally.to Opponentsclose ofdown matrixtheir schemessites. believe otherwise.A Nonetheless,few neitherUK thematrix Officesites ofcarried Fairon Tradingby orutilising thecontractual Departmentlaw ofto Tradetrade andlegally, Industrywith hasone testedmajor thissite argumentcarrying inon auntil courtMay of2006 law.when it All courtwas casessold to date havea beencompany in theDenmark. civil courtIn system,the andUK so itthere is stillno unclearspecific whetherlaw against matrix schemes operate within the lawsites.

Other countries may have different laws regarding these matrix sites, but information is unavailable at this time.

In 2003 EZExpo and several payment processors were sued in the civil courts for running an illegal lottery in the state of California, with the payment processors abetting the scam.<ref>{{cite web | url =http://appellatecases.courtinfo.ca.gov/search/case/dockets.cfm?dist=0&doc_id=371626 | title = California Courts - Appelate Court Case Information -Docket Entries| accessdate = 2005-08-06}}</ref> <ref>{{cite web | url =http://wagelaw.typepad.com/wage_law/2006/05/prop_64_cases_t.html | title = Wage Law: Prop 64 Cases To Be Argued | accessdate = 2005-08-06}}</ref><ref>{{cite web | url =http://www.diaz-law.com/diazlaw/2005/05/prop_64_to_the_.html | title = The Antitrust Monitor: Prop 64 to the Rescue for Neovi, PaySystems, and PayPal But Not for Ginix| accessdate = 2005-08-06}}</ref> However, the civil case is still ongoing.

==Notes==

{{reflist|colwidth=30em}}

<references />

==News articles==

*[http://msnbc.msn.com/id/3078976 $150 for a plasma TV? A bad bet] - [[MSNBC]]

*[http://msnbc.msn.com/id/3078957 $150 plasma TV site faces lawsuit] - [[MSNBC]]

*[http://www.thisislondon.com/news/articles/11783353?source=Evening%20Standard Warning over iPod scam] - [[This is London]]

*[http://www.wired.com/news/culture/0,1284,62226,00.html eBay scam uses iPods as bait] - [[Wired magazine|Wired]]

==External links==

*[httphttps://msnbcwww.msnnbcnews.com/id/3078976wbna3078976 $150 for a plasma TV? A bad bet] -– [[MSNBC]]

*[http://www.matrixwatch.org Matrix Watch.org] - An anti-matrix viewpoint.

*[https://web.archive.org/web/20081030000647/http://www.thisislondon.co.uk/news/article-11783353-details/Warning+over+iPod+scam/article.do Warning over iPod scam] – [[London Evening Standard#Websites|This is London]]

*[http://www.cyberama.info Cyberama.info] - A pro-matrix viewpoint.

*[httphttps://www.wired.com/news/culture/0,1284,62226,00.html eBay scam uses iPods as bait] -– [[Wired magazine|Wired]]

*[https://www.nbcnews.com/id/wbna3078976 MSNBC article]

{{Scams and confidence tricks}}

[[Category:Multi-level marketing]]

[[Category:Pyramid and Ponzi schemes]]

[[ru:Матричная схема]]