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OFT shuts down matrix scheme website

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Those behind a website promoting a fraudulent “matrix” scheme have given binding undertakings to the UK’s Office of Fair Trading (OFT) that they will no longer promote "free" iPods and other gadgets that were subject to conditions akin to pyramid schemes.

Mobiles4all Ltd had promised consumers the chance of getting “free” iPods or mobile phones simply by purchasing a low value product costing £20–£35, such as a CD-ROM containing ringtones or a sim card.

Participants who bought the product were added to a waiting list for their chosen “free gift'” and told that it would be sent to them after they reached the top of the list. However, for each “free gift” to be dispatched, a set number of new recruits had to join the scheme (usually around 30, although the number varied according to the value of the “free gift" that was chosen). The company claimed to have over 10,000 customers.

The nature of matrix schemes means that the number of members waiting for a “free gift” always far exceeds the number of “free gifts” awarded. For example, if you sign up in hundredth place on a waiting list that requires 50 new recruits per gift you would not reach the top and receive your gift until 5,000 people had joined – i.e. 50 new recruits for each of the members on the list.

The waiting time can also be extended if the scheme offers other participants the opportunity to 'queue jump', meaning that the number of recruits needed before you will receive your gift may be substantially greater.

Such was the case with the Mobiles4all scam, which allowed participants to move themselves up the waiting lists faster, and in some cases to bypass the lists, by recruiting new members to the scheme or buying further products.

The OFT investigated, and has now decided that the scheme is an unlawful lottery under the Lotteries and Amusements Act.

The OFT has accordingly obtained undertakings from Bournemouth-based Mobiles4all Ltd, company director Lewis C Bryant and company Secretary Jonathan Darch, that they will not continue, or repeat, the promotion of any scheme which constitutes an unlawful lottery.

If the undertakings are breached the OFT could seek a court injunction. Failure to obey a court injunction could result in proceedings for contempt of court.

The undertakings are the latest in a string obtained by the OFT to combat schemes that undermine confidence in the internet and e-commerce, and follows those obtained by the agency in July, in relation to the websites Pulsematrix.com and themobilematrix.com.

© Pinsent Masons 2000 - 2005

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