A matrix scheme, also known as a Matrix Site, Elevator Scheme, Escalator Scheme or Ladder Scheme, is a business model^{[citation needed]} 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.^[1] Matrix schemes are also sometimes considered similar to Ponzi or pyramid schemes. ^[2] They have been called unsustainable by the United Kingdom's Office of Fair Trading. ^[1] The Matrix Scheme is also an example of an exploding queue in Queueing Theory. The term business model describes a broad range of informal and formal models that are used by enterprises to represent various aspects of business, such as operational processes, organizational structures, and financial forecasts. ... A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns (profits) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business, named after Charles Ponzi. ... The unsustainable geometric progression of a classic pyramid scheme A pyramid scheme (or pyramid scam[1]) is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered, and is highly illegal. ... The Office of Fair Trading or OFT is a UK statutory body established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UKs economic regulator. ... Queueing theory (also commonly spelled queuing theory) is the mathematical study of waiting lines (or queues). ...

History

The first known matrix scheme is widely believed to be EZExpo.com, which started the popularity of Matrix Schemes in 2002. ^[2] 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.^[3] Stormpay later claimed to be independent of TymGlobal, and they no longer accept matrix schemes. Although many have since ceased trading, some schemes are still known to be operating worldwide.

Operation

The operation of matrix schemes varies, though they often operate similar to Ponzi schemes. ^[4] 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 shareware CDs. When a pre-defined 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. Apple iPod, the most popular hard drive-based digital audio player An embedded hard drive-based player (Creative Zen Vision:M), one of the many alternatives for the iPod An MP3 CD player (Philips Expanium) Some mobile phones can be used as digital audio players, such as the Nokia 6233. ... The tower of a personal computer. ... Cellular redirects here. ...

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. 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. ^[4] Multi-level marketing (MLM) is a business model that combines direct marketing with franchising. ...

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 PS2 (which was quite common). 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 would never receive their reward item as eventually the matrix must reach a point by which it will be nearly impossible for new people added to the list to reach the top. 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.

Matrix Scheme in Queueing Theory

A Matrix Scheme is easily represented as a simple M/M/1 queue within the context of Queueing Theory In such a system you have a Markovian arrival, Markovian service, and one single server (F. S. Hiller and G. J. Lieberman. Introduction to Operations Research. McGraw-Hill, New York, 1995). In the standard Matrix queue service rates are a function of arrival rates since the time to cycle out of the queue is based off the entry fee into the matrix from arriving members. Also, since members move through the matrix in single file, it is easy to associate the single server. Queueing theory (also commonly spelled queuing theory) is the mathematical study of waiting lines (or queues). ... Queueing theory (also commonly spelled queuing theory) is the mathematical study of waiting lines (or queues). ...

The basic premise of queueing theory is that when service rates equal or exceed arrival rates overall waiting time within the queue moves towards infinity (Hiller and Lieberman). Queueing theory (also commonly spelled queuing theory) is the mathematical study of waiting lines (or queues). ...

The basic formulation includes three formulae. The traffic intensity, ρ, is the average arrival rate (λ) divided by the average service rate (μ):

 ρ=λ/μ 

The mean number of customers in the system (N):

 N = ρ/(1-ρ) 

And the total waiting time within the queue (T):

 T = 1/(μ-λ) 

It is possible to see that as arrival rates rise towards service rates the total waiting time (T) and mean number of customers in the system (N) will move towards infinity ^[5]. Since service time can never exceed the arrival time in the standard matrix, and total waiting time can only be defined if service times exceed arrival times, the only way for the matrix queue to reach stability is for outside income sources to exceed those being entered into the system.

Legality

Currently there are no laws specifically naming matrix schemes illegal in the US. However, the US Federal Trade Commission has issued warnings to the public about these sites. In the UK, the Office of Fair Trading has declared some of them to be illegal. On July 1, 2005, two matrix sites, pulsematrix.com and phones4everyone (themobilematrix.com), were declared to be running a form of illegal lottery. Additionally, the US Federal Trade Commission and the UK Trading Standards have issued warnings to the public regarding the ease with which these models can be manipulated for fraudulent purposes. FTC headquarters, Washington, D.C. The Federal Trade Commission (or FTC) is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. ... FTC headquarters, Washington, D.C. The Federal Trade Commission (or FTC) is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. ... The Trading Standards Institute is the UK government-appointed body responsible for protecting consumers rights and enforcing related laws. ...

Many of the original matrix sites, including EZExpo.com, are no longer in operation; some of them closed down while defending civil lawsuits. In 2003 EZExpo and several payment processors were sued in the civil courts for running an illegal lottery in the state of California, with the payment processors abetting the scam.^{[6] [7][8]} However, the civil case is still ongoing. One result of the lawsuit is that those payment processors and some others no longer accept matrix schemes as customers. Currently, no legal precedent exists regarding the matrix scheme in the US.

Notes

1. ^ ^{a b} Matrix Website Scheme stopped by Office of Fair Trading. Retrieved on 2006-08-05.
2. ^ ^{a b} $150 plasma TV site faces lawsuit. Retrieved on 2006-08-05.
3. ^ The Leaf Chronicle. Retrieved on 2006-08-10.
4. ^ ^{a b} $150 for a plasma TV? A bad bet. Retrieved on 2006-08-05.
5. ^ M/M/1 Queueing System. Retrieved on 2007-03-03.
6. ^ California Courts - Appelate Court Case Information -Docket Entries. Retrieved on 2005-08-06.
7. ^ Wage Law: Prop 64 Cases To Be Argued. Retrieved on 2005-08-06.
8. ^ The Antitrust Monitor: Prop 64 to the Rescue for Neovi, PaySystems, and PayPal But Not for Ginix. Retrieved on 2005-08-06.

Year 2006 (MMVI) was a common year starting on Sunday (link displays full 2006 calendar) of the Gregorian calendar. ... is the 217th day of the year (218th in leap years) in the Gregorian calendar. ... Year 2006 (MMVI) was a common year starting on Sunday (link displays full 2006 calendar) of the Gregorian calendar. ... is the 217th day of the year (218th in leap years) in the Gregorian calendar. ... Year 2006 (MMVI) was a common year starting on Sunday (link displays full 2006 calendar) of the Gregorian calendar. ... is the 222nd day of the year (223rd in leap years) in the Gregorian calendar. ... Year 2006 (MMVI) was a common year starting on Sunday (link displays full 2006 calendar) of the Gregorian calendar. ... is the 217th day of the year (218th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... is the 62nd day of the year (63rd in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... is the 218th day of the year (219th in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... is the 218th day of the year (219th in leap years) in the Gregorian calendar. ... Year 2005 (MMV) was a common year starting on Saturday (link displays full calendar) of the Gregorian calendar. ... is the 218th day of the year (219th in leap years) in the Gregorian calendar. ...

News articles

• $150 for a plasma TV? A bad bet - MSNBC
• Warning over iPod scam - This is London
• eBay scam uses iPods as bait - Wired

MSNBC, a combination of MSN and NBC, is a 24-hour cable news channel in the United States and Canada, and a news website. ... Wired is a full-color monthly magazine and on-line periodical published in San Francisco, California since March 1993. ...

External Links

• Pyramid, Ponzi, and Matrix schemes - DMOZ