The promoters of a web-based scheme that offered expensive hi-tech gadgets as a 'free gift' in return for buying a low-value product have had to give binding undertakings to the UK Office of Fair Trading (OFT) that they will no longer promote such schemes.
Mobiles4all Ltd promoted a 'matrix' scheme promising people the chance of getting valuable 'free gifts' such as mobile phones and iPods 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. The scheme offered participants the opportunity 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. However, the OFT considered the scheme to be an unlawful lottery 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 made by chance as it was substantially outside their control.
The OFT has obtained undertakings from Mobiles4all Ltd, and from its directors, under Part 8 of the Enterprise Act 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.
This action is the latest in a string of undertakings obtained by the OFT to combat schemes that undermine confidence in the Internet and e-commerce. Tens of thousands of consumers had signed up to the schemes stopped by the OFT. The OFT had issued a consumer alert in December 2004, entitled 'Beware of the Matrix' to warn consumers about matrix schemes being promoted on web sites offering 'free' electronic gadgets.
Sir John Vickers, OFT Chairman, said: "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."