10d. Matrix Schemes, IUH 2009-12, 2ND Ed, R513A

Author Notes: Reference Copy, links to Original Copy removed due to the Age of the Content. See the top Blog Menu for Copyright Concerns, Some Content Removed.

Preface
Dr. Don, Founder ICFO

 

10d. Matrix Schemes, IUH 2009-12, 2ND Ed, R513A

A matrix scheme (also known as a matrix sale or site, and as a hellevator, escavator or ladder scheme) is a business model involving the exchange of money for a certain product with a side bonus of being added to a waiting list for a product of greater value than the amount given. Matrix schemes are also sometimes considered similar to Ponzi or pyramid schemes. They have been called unsustainable by the United Kingdom’s Office of Fair Trading

HISTORY

The first known matrix scheme is widely believed to be EZExpo.com, which started the popularity of matrix schemes in 2002. By 2003 more than 200 matrix schemes were in operation, including one which had the same owner as the payment processor Stormpay (TymGlobal). Subsequently TymGlobal and Stormpay were accused of running an illegal Ponzi scheme. Stormpay later claimed to be independent of TymGlobal, and they stopped accepting matrix schemes as customers. Although many have since ceased trading, some schemes are still known to be operating worldwide. The payment processor, Stormpay, is no longer trading.

OPERATION

The operation of matrix schemes varies, though they often operate similar to pyramid or Ponzi schemes. Some of the former participants of these schemes consider them to be a form of confidence trick, although others are happy with their purchase. To move upward in the list, a person must wait for new members to join or refer a certain number of people to the list. This is accomplished through purchasing a token product of marginal value: usually e-books, cell phone boosters, screen savers, or other software CDs/DVDs. When a predefined number of people have purchased the token product the person currently at the top of the list receives their reward item, and the next person in the list moves to the top. The rewards for those at the top of the matrix list are usually high-demand consumer electronics, such as portable digital audio players, high-definition television sets, laptop computers, and cellular phones. Reaching the point on the list where you receive the expensive goods is termed “cycling”.

In many cases, the token product alone could not be reasonably sold for the price listed, and as such legal experts claim that, regardless of what is said, the real product being sold is the “reward” in question in those situations.

In these cases, the operator could be charged with running a gambling game or failing to supply ordered products. Steven A. Richards, a lawyer who represents multi-level marketing (MLM) companies for Grimes & Reese in Idaho Falls, Idaho, has stated that often there are no clear legal tests for Ponzi schemes. But if the product sold has no value or very little value, and consumers wouldn’t buy it without the attached free gift, the scheme probably runs afoul of federal and state laws

The “Matrix List” by which the sites receive their name would be what is known as a straight-line matrix, or 1 by X matrix. This is similar to many MLMs that use Y by X matrices to fill a down-line.

For example, one situation may be a 1 by 10 matrix for a Sony PlayStation 2 (a common reward). In such a matrix the site would usually sell an e-book for $50 to be placed on the list. After 9 additional people purchased a spot, the first person would receive either a PS2 or cash value equivalent and would be removed from the list.

The person who had been second would move up to the first spot and an additional 10 people would have to purchase in order for this person to receive a PS2. It is this orderly movement which has also given the name “Elevator Scheme” to these sites as people would move up the elevator (escalator, ladder) to the top at which they would then “cycle” out of the matrix.

In such a matrix, 9 out of 10 or 90% of all customers will not receive the reward item, because the rules of the scheme are that one reward is issued for every 10 customers that join. (The fact that the reward is issued to the customer at the top of the list doesn’t change the proportion of rewards given to customers signed up.) Supporters claim that additional revenue streams from advertising are used to keep the lists moving. However, detractors claim that it is impossible to generate enough outside revenue. If the entire world were to join the list, 90% 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 10 people are required before it will cycle, the first person to join only needs 9 additional sign ups, but the second person needs 18 additional sign ups, 8 more for the person above him, and then 10 more for himself. The third person on the list likewise needs 27 additional signups, 7 for the person on top of the list, 10 for the person directly above him, and then 10 for himself. And then the number of people required continues to grow for each new person joining the list. For the 10th person to cycle it would require 100 people total, and 1000 for the 100th, and so on. Wikipedia

TIPS FOR CONSUMERS AND BUSINESSES BEWARE OF ANY PLAN:

THAT MAKES EXAGGERATED EARNINGS CLAIMS

Beware of any plan that makes exaggerated earning claims especially when there seems to be no real underlying product sales or investment profits. The plan could be a Ponzi scheme where money from later recruits pays off earlier ones. Eventually this program will collapse, causing substantial injury to most participants.

THAT OFFERS COMMISSIONS FOR RECRUITING NEW DISTRIBUTORS

Particularly when there is, no product involved or when there is a separate, up-front membership fee. At the same time, do not assume that the presence of a purported product or service removes all danger. The Commission has seen pyramids operating behind the apparent offer of investment opportunities, charity benefits, offshore credit cards, jewelry, women’s underwear, cosmetics, cleaning supplies, and even electricity.

THAT PURPORTS TO SELL A PRODUCT OR SERVICE

Check to see whether its price is inflated, whether new members must buy costly inventory, or whether members make most “sales” to other members rather than the public. If any of these conditions exist, the purported “sale” of the product or service may just mask a pyramid scheme that promotes an endless chain of recruiting and inventory loading.

THAT CLAIMS TO HAVE A SECRET PLAN

Overseas connection or special relationship that is difficult to verify. Charles Ponzi claimed that he had a secret method of trading and redeeming millions of postal reply coupons. The real secret was that he stopped redeeming them. Likewise, CDI allegedly represented that it had the backing of a special overseas bank when no such relationship existed.

THAT DELAYS MEETING ITS COMMITMENTS WHILE ASKING MEMBERS TO “KEEP THE FAITH.”

Many pyramid schemes advertise that they are in the “pre-launch” stage, yet they never can and never do launch. By definition, pyramid schemes can never fulfill their obligations to a majority of their participants. To survive, pyramids need to keep and attract as many members as possible.

Thus, promoters try to appeal to a sense of community or solidarity, while chastising outsiders or skeptics. Often the government is the target of the pyramid’s collective wrath, particularly when the scheme is about to be dismantled. Commission attorneys now know to expect picketers and a packed courtroom when they file suit to halt a pyramid scheme. Half of the pyramid’s recruits may see themselves as victims of a scam that we took too long to stop; the other half may view themselves as victims of government meddling that ruined their chance to make millions. Government officials in Albania have also experienced this reaction in the recent past.

THAT ATTEMPT TO CAPITALIZE ON THE PUBLIC’S INTEREST IN HI-TECH OR NEWLY DEREGULATED MARKETS

Every investor fantasizes about becoming wealthy overnight, but in fact, most hi-tech ventures are risky and yield substantial profits only after years of hard work. Similarly, deregulated markets can offer substantial benefits to investors and consumers, but deregulation seldom means that “everything goes,” that no rules apply, and that pyramid or Ponzi schemes are suddenly legitimate.

CONCLUSION

As we continue to pursue pyramid schemes, we would be delighted to coordinate our efforts with law enforcement in your countries. It is only too evident that the expansion of fraud across borders and on the World Wide Web means that no one agency or country can work effectively on its own. We must be collectively vigilant in order to protect the integrity of our marketplaces and the pocketbooks of our consumers. SpeechFTC-IMF

FOR THE I DONT DO MLM READERS [removed]

EBAY POLICY MLM, PYRAMID, AND MATRIX PROGRAMS

POLICY OVERVIEW

We don’t allow listings and advertising of multi-level marketing programs (including online payment randomizers), matrix, pyramid, Ponzi schemes, and all similar programs on eBay. These programs are often regulated or illegal.

Make sure your listing follows these guidelines. If it doesn’t, it may be removed, and you may be subject to a range of other actions, including limits of your buying and selling privileges and suspension of your account.

WHAT ARE THE GUIDELINES?

MULTI-LEVEL MARKETING

Not allowed. This includes any business where you receive income from your own sales and income from your recruited members.

Online payment randomizers (because the majority of commissions are paid for recruitment of new members, and typically operate by random placement within the program.)

PYRAMID SCHEMES:

These schemes often ignore the actual selling of products and services, and concentrate on the income you can earn by recruiting new distributors. Pyramid schemes might not involve selling products.

MATRIX PROGRAMS:

These programs involve the exchange of money primarily for being added to a waiting list for a product. If you’re at the top of the list, you receive a product when a set number of people join after you join.

Thanks for Reading – 10d. Matrix Schemes, IUH 2009-12, 2ND Ed, R513A

Dr Don, Founder, ICFO

Previous Post
Dr. Don, Founder ICFO
Marketing ICFO Cybersecurity

10c. MLM Programs, IUH 2009-12, 2ND Ed, R513A

Next Post
Dr. Don, Founder ICFO
Marketing ICFO Cybersecurity

11. Managing Your Online Business?, IUH 2009-12, 2ND Ed, R513A

Leave a Reply