The Financial Industry Regulatory Authority (FINRA) recently issued an “Investor Alert” to warn of high-yield
investment programs (HYIPs). HYIPs are Internet-based
Ponzi schemes involving the sale of unregistered securities.
HYIPs typically use sophisticated looking websites and social media sites
(such as YouTube, Twitter and Facebook) to sell their investments. HYIP
scammers use the Internet to create the impression of a social consensus
that these investments are indeed legitimate.
In typical Ponzi scheme fashion, these programs purport to offer unrealistically
high, unsustainable returns on investment. HYIPs also display several
other hallmarks of fraud. For instance, most HYIPs are vague as to the
details of the investment strategy and offer little information on the
operators of the program. Many HYIPs also offer bonuses to investors for
referrals – a way of attracting new money which keeps the scam going.
The recently exposed “Pathway to Prosperity” HYIP allegedly
attracted over $70 million from investors across the globe. This scam
used reverse psychology to legitimize its operations, expressly cautioning
investors against HYIPs to create the false impression that this HYIP genuine.
To learn more about HYIPs, and how to protect yourself against such scams, click
here to read FINRA’s Investor Alert.