High Yield Investment Programs (HYIPs): Ponzi Schemes in the Internet Age

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.

How to Recognize a High Yield Investment Program (HYIP)

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.

Example of an HYIP

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.

Learn more about HYIPs and how to protect yourself against such scams. Click here to read FINRA’s Investor Alert.

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