Pulsematrix.com and phones4everyone promoted so-called 'matrix schemes' promising people the chance of getting the valuable free gifts – also including mobile phones, games consoles, cash or a car – by purchasing the low-value products. Phones4everyone claimed to be "the most established and successful site of its kind," with over 18,000 members.
Participants who bought the product were added to a waiting list for their chosen free gift, which 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. This number varied according to the value of the gift that was chosen, but could be around 50 for the latest model mobile phone.
The nature of matrix schemes means that the number of members waiting for a free gift always far exceeds the number of gifts awarded. Even though both sites offered participants the opportunity to move themselves up the waiting list faster – by recruiting new members to the scheme, buying further products or by signing up for third party services – the OFT contended that a participant's success in influencing their position on the waiting list was dependent, for the vast majority of those taking part, on what other participants did.
The further down the waiting list you join the matrix scheme the less your chances of ever receiving your free gift. For example, if you sign up in 100th place on a waiting list that requires 50 new recruits per gift you would not reach the top and receive your gift until 5000 people had joined, i.e. 50 new recruits for each of the members on the list. Because the schemes also offer other participants the opportunity to queue jump, the number of recruits needed before you will receive your gift may be substantially greater.
The OFT considered the schemes to be unlawful lotteries under the Lotteries and Amusements Act, as participants had to pay for a chance to receive a prize or reward, were not required to exercise any degree of skill, and the distribution of the prizes/rewards was substantially outside their control.
The Lotteries and Amusements Act of 1976 provides that all lotteries and raffles (except where specifically authorised by that Act or the National Lottery etc. Act of 1993) are unlawful, and makes it an offence to be involved with their promotion. The 1976 law authorises small lotteries incidental to exempt entertainments, private lotteries, lotteries of certain registered societies and local authority promoted lotteries where they meet certain conditions. The 1976 Act does not apply to 'gaming', which requires participants to exercise a degree of skill.
The OFT has obtained undertakings from Lewis Ames of, and Tom Hashemi formerly of, pulsematrix.com and Darren Ithell of phones4everyone under the Enterprise Act of 2002. They have all undertaken not to 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.
Penny Boys, OFT Executive Director, said:
"These schemes are ultimately unsustainable and will eventually collapse to the detriment of thousands of people. Very few people will ever receive the 'free gift' they expect to get."
