Oct 24, 2005, 9:12 am
Every week, Tony Hetherington of This is Money (UK) replies to readers' letters, adding comments, advice and the results of his enquiries. If you think you are a victim of financial mismanagement, or want advice before investing, write to Tony Hetherington, Financial Mail, 2 Derry Street, London W8 5TS. Sorry, but he cannot give personal replies. Please send only copies of documents - if these are relevant to your enquiry. We regret that they cannot be returned.
A. W. writes: I attended a presentation on an internet-based gambling scheme called Global Lotto, which claims to give members a vastly increased chance of winning the National Lottery. The promoters said that if I introduced more participants, I would receive a commission. This would mean I could play for free myself and even make an income by promoting it.
The scheme is run by GLE Management, whose bosses are Tony Hodgkins and Terry Farrell. Is it legal and what is the catch, or is it just another con? Is it a pyramid scheme and are there likely to be any losers? Are the company's claims of frequent lottery wins and ongoing income likely to stack up?
Unanswered questions about the Global Lotto scheme keep piling up. But let us start with what we know already. Members are organised in syndicates of 44, all paying £5 a week to take part. And according to Global Lotto, 'you get a massive 88 chances of winning'.
But hang on. If 44 people pay £5 each, that's £220. Yet between them, they get only 88 lottery tickets costing £88. Where does the remaining £132 go, and why would anyone pay £5 for lottery tickets worth £2?
Well, Global Lotto is not just a lottery syndicate, it is also a pyramid scheme. The only logical reason for joining is that if you recruit five more people, your own membership costs you nothing. And if your five recruits pull others into the scheme, you get a slice of their fees, too.
Of course, they must cover their costs by recruiting yet more people. If everyone recruits five other people, after the process is repeated half a dozen times you will have 19,530 members below you and your commissions will add up to £4,886 a week. However, it is more likely the number of recruits will eventually dry up and, like every other pyramid scheme, it will collapse.
Hodgkins assures me winnings are genuine and everything is lawful. Is it a con or a pyramid scheme? 'This is a totally offensive comment, but I will answer,' he said. 'We are a limited company and as such take our responsibilities very seriously - enough said?'
Well, no, actually. Hodgkins refused to say whether joining only makes financial sense if you recruit others - a classic sign of a pyramid scheme. And he refused to say where the £132 weekly profit from each syndicate goes.
But then he is hardly reliable as a source of information. He was a senior figure in KF Concept, the easy-money scheme run by one-time cabbie Kevin Foster, who was bankrupted recently with debts of £36m.
And Hodgkins' initial target audience for his new lottery scheme is the 8,500 people who were taken for a ride by Foster in the definitely unlawful scheme that Hodgkins helped to promote. I did wonder what National Lottery operator Camelot thought of all this. Officials were distinctly cool towards Global Lotto.
One said: 'The lottery is not a game of skill and there is no additional advantage that commercial syndicates can offer players in respect of odds.'
But just in case I was still missing something, I called in lawyer Nigel Adams, who wrote the best book around on this subject, Your Lottery Syndicate Book, published by Aspen Gold, £6.99.
According to Adams: 'A. W. is a member of a syndicate of 44, which ought to be buying 220 tickets. Instead, the number of tickets is 88. It's not sound doing this through a commercial syndicate. That's the bottom line.'
Global Lotto looks like a pyramid, behaves like a pyramid, and is a pyramid. I am certain it will be investigated by the Department of Trade & Industry, and if the DTI acts against it in the same way that the Financial Services Authority moved against KF Concept, it will be just as short lived, if not shorter.