High Yield Investment Programs (HYIPs): How to Avoid This Scam

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 are reached.
  • 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.