Definition

High-Yield Investment Program (HYIP)

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High Yield Investment Program

 

What do you mean by High-Yield Investment Program (HYIP)?

A high-yield investment program (HYIP) is a spurious investment scheme that claims to deliver extraordinarily high returns with little or no risk. HYIP operators usually create a website to offer an "investment program" that claims to pay very high returns.  

High-yield investment programs are unregistered investments that lure investors by promising yields of more than 100% a year. HYIP is run by unlicensed individuals and is often compared with the Ponzi scheme. 

 

Summary
  • A high-yield investment program (HYIP) is a spurious investment scheme that claims to deliver extraordinarily high returns with little or no risk.
  • HYIP is run by unlicensed individuals and is often compared with the Ponzi scheme. High-yield investment programs are also known as prime bank scam.
  • HYIP operators usually create a website to offer an "investment program" that claims to pay very high returns.

Frequently Asked Questions (FAQs):

How has technological advancement made HYIPs and other scams easier?

HYIPs are fraudulent schemes, which aim at stealing the money of the investors. In High-yield investment programs, money obtained from new investors is used to pay returns to the previous investors. In truth, neither new investments are made, nor any actual returns are earned; instead, money from new people is given to those who entered the scam earlier.

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Nonetheless, Ponzi schemes go back to early 1900s; the advent of digital technology such as e-payment systems has made it easier for fraudsters to deceive investors through such scams. The HYIP operators mainly accept digital payments as they are more accessible as compared to traditional merchant accounts. The operators target and trap the investors by setting up a website that promises high returns on investments but discloses nothing about the management of funds obtained from the investors or where and how the funds are to be invested. 

Some HYIP companies started their own electronic currency companies, though eventually, they became non-functional. The companies which started their own digital currency companies include -- Standard Reserve, OSGold, INTGold, EvoCash, and V-Money.

StormPay, a US company that was started in 2002, continued with its business even after Tennessee shut down the HYIP it was serving. Moreover, the company became unavailable for investments in HYIP after it announced on its websites that it would not accept any payments for sales made outside of StormPay Auctions. Many former users of StormPay have a hostile attitude towards the company because it failed to pay them their requested funds. 

What are the few warning signs that investors must notice to save themselves from becoming victims of HYIP scams?

High-yield investment programs refer to the fraudulent investment scams run by unlicensed individuals with a promise to pay extraordinary returns on investments. 

High-yield investment programs are also known as prime bank scam. This is because the operators might tell investors that their investments are involved with financial instruments from prime banks.

However, one should not forget that HYIP is different from high-yield bond investment. High-yield investment bonds or junk bonds offer higher than investment-grade interest rates due to lower credit ratings and higher risks. The HYIP operators commonly use social media platforms like Facebook, Twitter, LinkedIn or YouTube to lure investors and create an illusion about the legitimacy of these programs. 

As per the Securities and Exchange Commission (SEC), there are several warning signs that investors can use to save themselves from falling into the trap of HYIP fraudsters. The warning signs include assurance of extraordinary returns, fake financial instruments, extreme secrecy and inordinate complexity about the investments. Moreover, it claims that the investments are an exclusive opportunity, and that well-reputed and financially sound institutions are participants in these spurious programs are also considered as warning signs of HYIP. HYIP operators use high secrecy levels and disclose nothing about the transactions to hide the truth that these are not legitimate investments. The best way to save yourself from becoming a victim of HYIP is to use your brain and ask too many questions. 

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Give few examples of High Yield Investment Programs.

The US SEC filed a complaint against ZeekRewards and its owner Paul Burk in the year 2012. Allegedly ZeekRewards promised investors attractive returns by sharing with them the profits made from a penny auction website, Zeekler. Investors were asked to let their gains compound and to enhance their returns by recruiting new investors. Besides, investors paid a monthly subscription fee which ranged between $10 to $99, with an initial investment of roughly $10,000. 

Later, the SEC discovered that more than 95% of the funds distributed were paid from new investments. A US Court termed ZeekRewards a $900 million Internet Ponzi Scheme. Paul Burk, who owned and operated Zeekler and its purported advertising division, ZeekRewards, was fined $244 million and was sentenced to more than 14 years in prison. 

HYIP in Cryptocurrency

HYIP also exists in the cryptocurrency market. Cryptocurrency, also known as a virtual or digital currency, can be easily exchanged over the internet and thus, it is easy for fraudulent operators to deceive investors. Spam operators create a fake website to advertise extraordinary return from Bitcoin. After the scammers identify the potential investors and succeed in getting funds from them, they delete the website and eventually disappear. In this way, the investors lose all the money they had deposited through the website.

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Other HYIPs

Some other HYIPs where legal action was taken and had to shut down their businesses are PIPS (People in Profit System), OSGold, Ginsystem Inc, Sunshine Empire (Singapore), City Limouzine, EMGOLDEX or Emirates Gold Exchange, and WorldWide Solutionz (South Africa).

What are the characteristics of HYIP?

Some of the characteristics of the High-Yield Investment Program:

  • High-yield investment programs promise unrealistic returns on investments to attract investors. HYIP lures investors by promising over 100% returns in a year.
  • Fraudulent investment schemes are usually non-transparent. They hide the profits.
  • They will not disclose to the investors where the investor's money is being invested.
  • Usually, HYIP operators do not provide essential details, such as location, terms and conditions, privacy policies, and how the funds are being invested.