Matrix scheme: Difference between revisions

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A '''matrix scheme''', also known as a 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 also sometimes regarded as illegal lotteries <ref name = msn1/> and have been called unsustainable by the [[Office of Fair Trading]]. <ref name =oftpress/>

{{POV-check}}:

==History==

A '''matrix scheme''' is a [[business model]] 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]].

The first known matrix scheme has widely been accepted as EZExpo.com, which started the popularity of Matrix Schemes in 2002. <ref name =msn1/> By 2003 more than 200 matrix schemes were in operation, including TymGlobal which was owned by the same people as the payment processor Stormpay. Subsquentally TymGlobal and Stormpay were accused to be running an illegal Ponzi scheme <ref name = leaf>{{cite web | url = http://www.theleafchronicle.com/apps/pbcs.dll/article?AID=/20060208/NEWS01/602080335/1002 | title = The Leaf Chronicle | accessdate = 2006-08-10}}</ref> Stormpay later claimed to be independent of TymGlobal and they no longer accept matrix schemes. Although many have since ceased trading, there are still schemes known to be operational around the world.

==Operation==

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, thea person must wait for new members to join, or refer a certain number of people to the list. The rewardsThis foris thoseaccomplished atthrough thepurchasing topa oftoken theproduct matrixof listmarginal arevalue: usually highe-demand consumer electronicsbooks, suchcell asphone portable [[digital audio player]]sboosters, plasmascreen and high-definition [[television]] setssavers, laptopor [[computers]],cd's andwith [[cellularvarious phone]]sshareware. More people joiningWhen a listpre-defined improve the likelihoodnumber of people nearhave purchased the toptoken receivingproduct the product,person butcurrently at the large numbertop of newcomers decreases the likelihoodlist thatrecieves sufficienttheir quantitiesreward ofitem, new people will joinand the listnext toperson assure allin the morelist numerousmoves recent joiners will reachto the top. Since mathematicallyThe this process cannot continue, eventually the matrix must reach a point by which it will be nearly impossiblerewards for newthose people added toat the listtop to reachof the top.matrix Supporters claim that additional revenue streams from advertisinglist are usedusually tohigh-demand keepconsumer theelectronics, listssuch moving.as portable [[digital Thereaudio areplayer]]s, otherplasma methodsand forhigh-definition keeping[[television]] thesets, listslaptop moving[[computers]], and each scheme[[cellular employs different techniquesphone]]s.

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/>

However, without sufficient alternate streams of revenue, the process cannot work. If a list requires a mere 4 people to cycle 1, that means only 20% of the list can ever cycle without alternate revenue streams, however large the list gets. If the entire world were to join the list, 80% 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.

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 downline.

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.

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.

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. [http://msnbc.msn.com/id/3078976 1].

HoweverIn such a matrix, without9 sufficientout alternateof streams10 or 90% of revenue,all thecustomers processwould cannotnever work.recieve their Ifreward aitem listas requireseventually the matrix must reach a merepoint 4by peoplewhich toit cyclewill 1,be thatnearly meansimpossible onlyfor 20%new ofpeople added to the list canto everreach cyclethe withouttop. Supporters claim that alternateadditional revenue streams, howeverfrom largeadvertising are used to keep the listlists getsmoving. However, detractors claim that it is immpossible to generate enough outside revenue. If the entire world were to join the list, 8090% 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.

==Legality==

Additionally, the amount of time needed before a given individual will receive the product in question is often mistaken. In a matrix in which 5010 people are required before it will cycle, the first person to join only needs 509 additional sign ups, but the second person needs 9918 additional sign ups, 498 more for the person above him, and then 5010 more for himself. The third person on the list likewise needs 14827 moreadditional signups, 487 for the person on top of the list, 5010 for the person directly above him, and then 5010 for himself. And then the number of people required continues to grow for each new person joining the list. UnlessFor the matrix10th site in question has a means by whichperson to "auto-cycle" membersit (suchwould asrequire diverting100 alternatepeople streamstotal, ofand revenue1000 intofor the lists)100th, theand listsso will stagnateon.

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}}

==Legality==

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 legalcivil 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). [http://www.oft.gov.uk/News/Press+releases/2005/118-05.htm] 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.

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==

The U.K. Office of Fair Trading, however, has determineddeclared 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 =oftpress2>{{cite web | url =http://www.oft.gov.uk/News/Press+releases/2005/118-05.htm] | title = Website schemes offering 'free' electronic gadgets stopped by OFT| accessdate = 2005-07-01}}</ref> In the UK some matrix sites may claim that they declare themselves to beare a private lottery, and thus operate legally. Other opponentsOpponents of matrix schemes declarebelieve thisotherwise. notNonetheless, neither arguement has been tested in court by the Office of Fair Trading or by the Department of Trade and Industry. All court cases to bedate have been in the civil court system, and so. it is still unclear whether matrix schemes operate within the law.

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==

*{{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}}

<references />

*{{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}}

*{{cite web|title=How do matrix sites operate within the law?|work=MatrixWatch Limited|url=http://www.cyberama.info/index.htm|accessdate=June 27|accessyear=2006}}

*{{cite web|title=What is a Matrix|work=Matrix Watch|url=http://www.matrixwatch.org/modules.php?name=FAQ&myfaq=yes&id_cat=6&s=|accessdate=May 27|accessyear=2005}}

*{{cite web|title=How does a Matrix Site Work?|work=Matrix Watch|url=http://www.matrixwatch.org/modules.php?name=FAQ&myfaq=yes&id_cat=6&s=#28|accessdate=May 27|accessyear=2005}}

*{{cite web|title=Pyramid Schemes, Ponzi Schemes, and Other Frauds|work=|url=http://members.impulse.net/~thebob/Pyramid.html|accessdate=June 3|accessyear=2005}}

*{{cite web|title=Top ten scams to look out for|work=UK Office of Fair Trading|url=http://www.oft.gov.uk/News/Press+releases/2005/18-05.htm|accessdate=June 3|accessyear=2005}}

*{{cite web|title=Website schemes offering 'free' electronic gadgets stopped by OFT|work=UK Office of Fair Trading|url=http://www.oft.gov.uk/News/Press+releases/2005/118-05.htm|accessdate=July 1|accessyear=2005}}

*{{cite web|title=(Pt 1, Sect.4) Private Lotteries|work=The Gaming Board for Great Britain|url=http://www.gbgb.org.uk/lotlaw_main.html#PRIVATE_LOTTERIES|accessdate=July 5|accessyear=2005}}

*[http://www.oft.gov.uk/News/Press+releases/2005/161-05.htm Office of Fair Trading press release]

==News articles==

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==External links==

*[http://www.matrixwatch.org Matrix Watch.org] - dedicated to stoppingAn anti-matrix sitesviewpoint.

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

[[Category:Multi-level marketing]]