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The Financial Industry Regulatory Authority (FINRA) recently issued a warning
to investors regarding high yield investment programs, also referred to
as HYIPs. The warning indicated that many of these investment scams are
being operated as
Ponzi schemes. HYIPs have become a growing concern for regulators, as the Federal Bureau
of Investigation reported an increase of 105% in new investigations from
2008 to 2009.
In our blog post,
High Yield Investment Programs (HYIPs): Ponzi Schemes in the Internet Age, we discussed how these investments boast high rates of return, anywhere
from 20 to 100% per day. In reality, HYIPs are simply Ponzi schemes that
sell unregistered securities.
In FINRA’s warning, there were numerous signs given that would indicate
an investment is a HYIP. Some of these warning signs include the following:
Unsustainable yields. The return on investment is typically given as a daily rate and is unreasonably
high. Most stocks for large companies have averaged 10 percent annually.
No clear explanation of how return will occur. There are usually only generic explanations given regarding how the returns
The HYIP is located in another country. Many of these programs are operated in other countries and they do not
have the appropriate licenses.
Referral fees are paid to investors. As a way to attract new investors, these programs will often pay referral
fees, as high as 25 percent, to anyone who can recruit more people.
Content filled with typos. According to FINRA, one of the telltale signs of a HYIP is content that
is full of typos and poor grammar. This content could come in the form
of emails, website copy, or other online postings.
You can protect yourself from these investment schemes by looking out for
the warning signs mentioned and by taking other precautions. For example,
always look into the company offering the investment. You can use FINRA’s
BrokerCheck to review a broker and/or broker-dealer.
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