Finra Alerts Ponzi Schemes

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HYIPs—High Yield Investment Programs Are Hazardous to Your Investment Portfolio

High-yield investment programs (HYIPs) are unregistered investments created and touted by unlicensed individuals. Typically offered through slick (and sometimes not-so-slick) websites, HYIPs dangle the contradictory promises of safety coupled with high, unsustainable rates of return—20, 30, 100 or more percent per day—through vague or murky trading strategies. According to law enforcement cases, many operate as Ponzi schemes, using payments from today’s recruits to pay "interest payments" to yesterday’s investors or "referral" fees to those who recruit new members. The Federal Bureau of Investigation reported that the number of new investigations in this area during fiscal year 2009 increased 105 percent over fiscal year 2008.

HYIPs use an array of websites and social media—including YouTube, Twitter and Facebook—to lure investors, fabricating a "buzz" and creating the illusion of social consensus, which is a common persuasion tactic fraudsters use to suggest that "everyone is investing in HYIPs, so they must be legitimate." Some of these sites purport to monitor and rank the "best" programs. Others tout "winning" HYIP investment strategies or provide a forum for trading tips on how to profit from HYIPs, even those suspected to be scams. Still others—such as the "Pathway to Prosperity" scheme in which investors on six continents allegedly lost $70 million—expressly caution investors against HYIP scams, using a form of reverse psychology to create the false impression that this HYIP is somehow different.

But the reality is virtually every HYIP we have seen bears hallmarks of fraud. We are issuing this alert to warn investors worldwide to stay away from HYIPs. If you have already put money into a HYIP:

  1. Do not send more, even if the program appears to be paying "interest."
  2. Do not refer others to HYIPs in an effort to garner referral fees—doing so only helps professional con criminals commit fraud and draws you into the scheme.
  3. Do not try to "ride the Ponzi" by attempting to get in and get out before the scheme collapses. If you do, you could end up like investors in the Genius Fund, a HYIP shut down by regulators where participants lost some $400 million.