Matrix scheme: Difference between revisions

Revision as of 16:57, 29 July 2006

Revision as of 07:58, 5 August 2006

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A '''matrix scheme''' is a [[Sustainability|non-sustainable]] business model<ref name="OFT 161-05">{{cite news | url=http://www.oft.gov.uk/News/Press+releases/2005/161-05.htm |title=Matrix website scheme stopped by OFT |publisher=United Kingdom Office of Fair Trading |date=[[August 23]], [[2006]]}} ''These schemes are unsustainable and will eventually collapse to the detriment of many people. They can also undermine consumer confidence in e-commerce. The OFT's targeting of mass-marketed scams is an important part of its work of making markets work well for consumers'.''</ref> involving the exchange of money for goods with a side bonus of being added to a waiting list for a product. Once a list receives enough new members, the person at the top of the list receives the product, and the next person in the list moves up. Matrix schemes are heavily promoted across the [[Internet]], especially on sites such as [[eBay]] and [[craigslist]].

==Operation==

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Additionally, the amount of time needed before a given individual will receive the product in question is often mistaken. In a matrix in which 50 people are required before it will cycle, the first person to join only needs 50 sign ups, but the second person needs 99, 49 more for the person above him, and then 50 more for himself. The third person on the list likewise needs 148 more signups, 48 for the person on top of the list, 50 for the person directly above him, and then 50 for himself. And then number of people required continues to grow for each new person joining the list. Unless the matrix site in question has a means by which to "auto-cycle" members (such as diverting alternate streams of revenue into the lists), the lists will stagnate.

Unlike a [[pyramid scheme]], a side product is delivered to each newcomer in the course of the enrollment purchase. Most matrix scheme owners sell electronic books or software CD-ROMs as the product, and then add the purchaser to the product list as a "bonus." In certain cases, the product alone could not be reasonably sold for the price listed, and so legal experts claim that regardless of what is said, the real product being sold is the "bonus" in question in those situations. Steven A. Richards in particular, a lawyer dealing with these issues, states that if the item in question isn't actually worth the amount of money tendered for it, and most people would not make the purchase if not for the bonus in question, it's probably illegal.<ref name=>{{cite news |author=Bob Sullivan |publisher=MSNBC |date=[[January 28]], [[2003]] |url=http://msnbc.msn.com/id/3078976 |title=$150 for a plasma TV? A bad bet}}</ref>1].

==Legality==

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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 U.K. [[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 legal action taken against the grandfather of the matrix site, EZExpo.com. {{fact}}

The U.K. Office of Fair Trading, however, has determined some of them to be illegal. On July 1st, 2005, the Office of Fair Trading in England declared that two matrix schemes were a form of illegal lottery, pulsematrix.com and phones4everyone (at themobilematrix.com).<ref name="OFT 118-05">{{cite news |publisher=United Kingdom Office of Fair Trading |date=[[July 1]], [[2005]] |url=http://www.oft.gov.uk/News/Press+releases/2005/118-05.htm |title=Website schemes offering 'free' electronic gadgets stopped by OFT}}</ref> In the UK some matrix sites may claim that they declare themselves to be a private lottery, and thus operate legally. Other opponents of matrix schemes declare this not to be so.

The U.K. Office of Fair Trading, however, has determined some of them to be illegal. On July 1st, 2005, the Office of Fair Trading in England declared that two matrix schemes were a form of illegal lottery, pulsematrix.com and phones4everyone (at themobilematrix.com).<ref name="OFT 118-05">{{cite news |publisher=United Kingdom Office of Fair Trading |date=[[July 1]], [[2005]] |url=http://www.oft.gov.uk/News/Press+releases/2005/118-05.htm |title=Website schemes offering 'free' electronic gadgets stopped by OFT}}</ref>] In the UK some matrix sites may claim that they declare themselves to be a private lottery, and thus operate legally. Other opponents of matrix schemes declare this not to be so.

Cases involving matrix sites have gone to civil trial, indicating that running one is likely a civil offence (as opposed to a criminal one).

Lotteries and Amusements Act 1976 ("the Act")

3. Under the Act, which covers only Great Britain, all lotteries which do not constitute gaming are declared to be unlawful, unless they are:

(a) small lotteries incidental to an exempt entertainment;

(b) private lotteries;

(c) society lotteries;

(d) local authority lotteries;

or (e) part of the National Lottery. [http://66.102.9.104/search?q=cache:pXT2wd9F-6oJ:www.colchester.gov.uk/servedoc.asp%3Ffilename%3DPPlotteryinfo.pdf+The+Lotteries+and+Amusements+Act+1976+Section+4&hl=en&gl=uk&ct=clnk&cd=18]

The rules for private lotteries are below:

A private lottery is one in which the sale of tickets is confined to either:

(a)members of one society established and conducted for purposes not connected with gaming, betting, or lotteries;

(b)persons all of whom either work or reside on the same premises.

(c)for persons all of whom work on the same premises.

Some matrix schemes operated through websites claim that they operate as a private lottery. Their reasoned arguements for this are shown below:

''The members are those people who have bought something at an internet website, such a software CD. The website constitutes the clubhouse, as this is where the members of the club meet. Straight after the purchase the members are placed into the lottery, which is advertised on the website (clubhouse). Tickets are not legally needed to be produced, but often they are sent as email confirmations. The monies raised from the sale of the tickets is split between prize fund and the club fund, usually with an 80% split in favour of the prize fund. '' [http://www.cyberama.info/index.htm]

Others dispute this, pointing out that advertising outside of the club is not allowed. It is hard to prove either viewpoint as this arguement has not been tested either in a court, by the Office of Fair Trading or by the Department of Trade and Industry.

It is worth noting that there have been no cases in criminal courts. All court cases to date have been in the civil court system, and so it is still unclear whether matrix schemes operate within the law.

==References==

<references />

'''General References'''

*{{cite web|title=What is a lottery|work=Colchester local council|url=http://www.colchester.gov.uk/servedoc.asp?filename=PPlotteryinfo.pdf|accessdate=June 27|accessyear=2006}}

*{{cite web|title=Private lottery rules|work=Department of Culture|url=http://www.culture.gov.uk/gambling_and_racing/fact_sheets/fact_lotteries.htm|accessdate=June 27|accessyear=2006}}

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==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]]