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161/05 23 August 2005
Promoters of a website scheme that offered expensive hi-tech gadgets as a 'free gift' in return for buying a low-value product have given binding undertakings to the OFT that they will no longer promote such schemes.
Mobiles4all Ltd promoted a 'matrix' scheme (see OFT consumer alert December 2004) 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 (see note 4), 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 Lewis C Bryant (company director) and Jonathan Darch (company secretary), 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. (see note 5). Tens of thousands of consumers had signed up to the schemes stopped by the OFT.
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'.
1. The registered office of Mobiles4all Ltd is 2 Riverside Road, Tuckton, Bournemouth, Dorset BH6 5NN.
2. The OFT issued a consumer alert in December 2004, 'Beware of the Matrix', to warn people about matrix schemes being promoted on websites offering 'free' electronic gadgets.
3. 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 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, that is 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.
4. The Lotteries and Amusements Act 1976 (LAA) provides that all lotteries and raffles (except where specifically authorised by the LAA or the National Lottery etc. Act 1993) are unlawful, and makes it an offence to be involved with their promotion. The LAA authorises small lotteries incidental to exempt entertainments, private lotteries, lotteries of certain registered societies and local authority promoted lotteries where they meet certain conditions prescribed by the LAA. The LAA does not apply to 'gaming', which requires participants to exercise a degree of skill.
5. The OFT obtained similar undertakings in relation to matrix schemes promoted on the websites Pulsematrix.com and themobilematrix.com (see press release 118/05).
6. The Enterprise Act 2002 improves consumer protection by giving enforcers strengthened powers to obtain legal undertakings or court orders against traders that breach a range of consumer legislation; covering activities such as misleading advertising, misleading price indications, unlawful lotteries, sale of goods and services, underage sales, estate agency, misleading health claims, trade descriptions, mock auctions, timeshare, unfair terms in consumer contracts, doorstep selling, distance selling, package travel and consumer credit.
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