A Devonshire couple who received more than $290,000 through an illegal lottery scheme have been bound over to be of good behaviour -- after a Magistrate accepted their plea that they did not know they were breaking the law.

In the first case of its kind in Bermuda, Craig and Juanita Swan, of Mount Hill, admitted setting up a pyramid scheme from their home in October, 1997.

Under the Ujamma system the couple recruited investors to pay up $100 to their company, NIA Enterprises, with the promise that they would recoup more than $10,000 on their investment.

But the success of the scheme depended on more people being recruited into the system, who would then pay $25 of their $100 original investment to the person directly above them in the chain.

In Magistrates' Court yesterday, Crown counsel Peter Eccles said the system was "a classic snowball scheme'' which broke the Island's lottery regulations. The schemes are also known as pyramid schemes.

But he agreed with defence attorney Michael Smith that there were several mitigating circumstances surrounding the case, namely that the couple were unaware that it broke regulations and had even sought legal advice before setting the business up.

"As with any pyramid or snowball or chain letter scheme an element of luck is unavoidable -- you're taking a chance,'' Mr. Eccles said.

"This scheme functions where there's a guaranteed loser. As people join the scheme they are either signed up or assigned to someone higher up the pyramid.

As the number of enrollees expands the flow to whoever is at the top of that, the pyramid increases.'' Mr. Eccles said he was satisfied that the couple had sought legal advice and had been wrongly told that the scheme was in no way illegal.

But, although admitting that the couple were in effect "guinea pigs'', the Crown had no choice but to prosecute "to establish clearly that this sort of scheme violates the law''.

Describing the scheme as "hopelessly optimistic and ill-conceived'', Mr.

Eccles said: "One must be aware that when running this scheme that it's going to collapse and people are going to lose their money.

"It victimises those who cannot afford to be victims and this the Crown will not tolerate.'' Defence attorney Michael Smith went even further in stressing that the couple had acted in good faith, saying that, when they first set up the company, neither the Police, the Bermuda Monetary Authority or the Attorney General's Chambers believed the system to be illegal.

And he added that, although nearly 3,000 people eventually signed up for the scheme, once investors had been paid off and expenses covered, the couple only made a profit of a few thousand dollars.

Mr. Smith added in mitigation that the couple had no former criminal convictions, were devout Christians and had an infant son . He also claimed that Mr. Swan could lose his job as a management accountant if he was given a criminal record.

Ordering the pair to be bound over to be of good behaviour for two years, Magistrate Edward King said: "I am satisfied that the scheme contravenes the Lottery Act but I am also satisfied that the two of you did all you could to ascertain the legality of the scheme and the grey area was never unearthed.''