The UK Office of Fair Trading (OFT) has clamped-down to end a so-called "free iPod" scheme .
The promoters of the scheme - which offered a variety of claimed high-tech "free gifts" in return for buying low-value products - have given what the OFT calls a "binding agreement" not to promote such schemes.
Mobiles4all promoted a scheme that promised people a chance to get valuable 'free
gifts' when they purchased a low value product costing £20-35, such as CDs containing ringtones.
The OFT explains: "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 UK regulator warns that the grim reality of such schemes is one in which the number of people waiting for their free gadget would always "far exceed" the number of gifts sent out.
The Mobiles4all scheme also let participant move themselves up the waiting lists faster by recruiting new members or by buying further products.
It won't be you
The OFT has declared the scheme to be an "unlawful lottery", citing the Lotteries and Amusements Act. This is because 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".
If the company continues to operate the promotion, the OFT could seek a court injunction. Failure to obey this could result in proceedings for contempt of court.
OFT chairman Sir John Vickers 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".