Wikipedia

Matrix scheme

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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.

Operation

The operation of matrix schemes varies. To move upward in the list, the person must wait for new members to join, or refer a certain number of people to the list. The rewards for those at the top of the matrix list are usually high-demand consumer electronics, such as portable digital audio players, plasma and high-definition television sets, laptop computers, and cellular phones. More people joining a list improve the likelihood of people near the top receiving the product, but the large number of newcomers decreases the likelihood that sufficient quantities of new people will join the list to assure all the more numerous recent joiners will reach the top. Since mathematically this process cannot continue, 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. There are other methods for keeping the lists moving, and each scheme employs different techniques.

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.

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. 1.

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 legal action taken against the grandfather of the matrix site, EZExpo.com. [citation needed]


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). [1] 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.

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. [2]

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. [3]

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

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  • "Private lottery rules". Department of Culture - UK government. Retrieved June 27. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • "How do matrix sites operate within the law?". MatricxWatch Limited. Retrieved June 27. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • "What is a Matrix". Matrix Watch. Retrieved May 27. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • "How does a Matrix Site Work?". Matrix Watch. Retrieved May 27. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • "Pyramid Schemes, Ponzi Schemes, and Other Frauds". Retrieved June 3. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • "Top ten scams to look out for". UK Office of Fair Trading. Retrieved June 3. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • "Website schemes offering 'free' electronic gadgets stopped by OFT". UK Office of Fair Trading. Retrieved July 1. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • "(Pt 1, Sect.4) Private Lotteries". The Gaming Board for Great Britain. Retrieved July 5. {{cite web}}: Check date values in: |accessdate= (help); Unknown parameter |accessyear= ignored (|access-date= suggested) (help)
  • Office of Fair Trading press release

News articles

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