HYIPs are high-risk, high-return investment programs that pool investors’ money to invest in markets that they couldn’t access alone. While some HYIPs are legitimate, many are fraudulent ponzi schemes that promise high returns with little risk. Investors should do thorough research and avoid programs that seem too good to be true and cannot explain how they generate returns. The FBI has warned about fake HYIPs, including OSGold and PIPS. Legitimate securities must be registered with the SEC.
HYIP stands for High Yield Investment Program and is a way for people to invest money in high-return, high-risk markets that they normally couldn’t do on their own, usually because they lack the initial investment funds. A HYIP pools investors’ money and uses the funds to invest in these markets; Investors receive a portion of the return on their investments over a pre-designated period of time. Most HYIPs pay interest daily, weekly, or monthly over the Internet. While some HYIPs are valid investment tools, most are actually a form of ponzi scheme.
Fraudulent HYIPs
A ponzi scheme is a fraudulent investment strategy that promises investors high returns with little or no risk. The scheme works by using money from new investors to pay existing investors; the criminal is always looking for new people to join to keep the cycle going. Investors are unaware that the money is not actually being invested; instead, it is being used for the criminal’s personal use and to pay investors enough to avoid getting caught. Eventually, the money runs out and the scheme is discovered. A HYIP can easily be a ponzi scheme because investors have no guarantee that the funds are actually being invested.
Scam HYIPs often have common similarities: many make false claims of secret banking systems and alternative financial networks, and most have websites that misuse financial jargon and include false testimonials, among other things, to convince investors that they they are a valid company. In many fraudulent cases, not only do investors never pay any interest returns, they also never see their original investment back. Fake HYIPs became common enough that the Federal Bureau of Investigation (FBI) issued warnings about being admitted for the claims made in these fraudulent programs.
Examples of fake HYIPs
Perhaps the most widely heard HYIP scam is OSGold, a company founded by David Reed in 2001 that allegedly stole over $250 million US dollars (USD) from investors. Another large-scale scam is known as the PIPS, or People in Profit System, scam. Started in 2004 by Bryan and Sharon Marsden, this fake HYIP required investors to pay an initial investment of $450 USD over a 180-day interest period, for which they were promised a return of 2% per day.
Tips for investing in HYIP
When considering making an investment in a HYIP, it is best to do some diligent research first. Any legitimate security that is sold to the public must be registered with the Securities and Exchange Commission (SEC). If it is a trustworthy investment program, it will be searchable through the SEC.
Other things to consider include: whether the claims seem too good to be true, and how the people running the program generate the high-performance returns that are being promised. If HYIP proponents cannot or will not explain how the returns are obtained, it may be best to avoid investing in the program.
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