High-yield investment program

Last updated

A high-yield investment program (HYIP) is a type of Ponzi scheme, an investment scam that promises unsustainably high return on investment by paying previous investors with the money invested by new investors. [1]

Contents

Mechanics

Operators generally set up a website offering an "investment program" which promises very high returns, such as 1% per day (3678% APY when returns are compounded every day), disclosing little or no detail about the underlying management, location, or other aspects of how money is to be invested. The U.S. Securities and Exchange Commission (SEC) has said that "these fraudulent schemes involve the purported issuance, trading, or use of so-called 'prime' bank, 'prime' European bank or 'prime' world bank financial instruments, or other 'high yield investment programs.' (HYIP's) The fraud artists ... seek to mislead investors by suggesting that well regarded and financially sound institutions participate in these bogus programs." [2] In 2010, the Financial Industry Regulatory Authority (FINRA) warned that "[t]he con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate." [3]

Some investors try to make money by attempting to invest in HYIPs at an early enough stage to create a return, and then by cashing out before the scheme collapses to profit at the expense of the later entrants. This is in itself a gamble as poor timing may result in a total loss of all money invested. To reduce this risk, some of these investors use "tracker sites" listing the schemes and their current state. One expert states that there is not enough evidence to corroborate that tracker sites can actually help investors make more money. [4]

Examples

Zeek Rewards

On August 17, 2012, the U.S. Securities and Exchange Commission (SEC) filed a complaint against defendants Paul Burks and Zeek Rewards, based in North Carolina. Paul Burks ran Zeek Rewards, an "investment opportunity" that promised investors returns by sharing in the profits of Zeekler, a penny auction website. Money invested in Zeek Rewards earned returns of 1.5% per day. Investors were encouraged to let their gains compound and to recruit new members into a "forced matrix" to increase their returns. The SEC contends that this forced matrix payout scheme constitutes a pyramid scheme. [5] New investors had to pay a monthly subscription fee of between US$10 and US$99, and provide an initial investment of up to $10,000. The higher the initial investment, the higher the returns appeared. The SEC stated that the Zeekler website brought in only about 1% of the Zeek Rewards company's purported income and that the vast majority of disbursed funds were paid from new investments. The SEC alleges that Zeek Rewards is a $600 million Ponzi scheme affecting 1 million investors, which would be one of the largest Ponzi schemes in history by number of affected investors. A court-appointed receiver estimated that the $600 million amount could be "on the low end" and that the number of investors could be as many as 2 million. [6] [7] Paul Burks paid $4 million to the SEC and agreed to cooperate with its investigation. [8] [9] [10] In February 2017 Burks was sentenced to 14 years and 8 months' imprisonment for his part in Zeek Rewards. [11]

OSGold

OSGold was founded as an e-gold imitator in 2001 by David Reed and folded in 2002. According to a lawsuit filed in U.S. District Court in early 2005, the operators of OSGold may have made off with US$250 million. [12] CNet reported that "at the height of its popularity, the OSGold currency boasted more than 60,000 accounts created by people drawn to promises of 'high yield' investments that would provide guaranteed monthly returns of 30 percent to 45 percent." [12]

PIPS

PIPS (People in Profit System or Pure Investors) was started by Bryan Marsden in early 2004 and spanned more than 20 countries. [13] [14] PIPS was investigated by Bank Negara Malaysia in 2005 which resulted in Marsden and his wife being charged in a Malaysian court with 97 counts of money laundering more than 77 million RM, equivalent to $20 million. [15]

Colonyinvest

Another large case took place in Thailand in 2008. Colonyinvest cheated 50,000 Thai investors out of about 5 billion baht (~ 150 million US$). [16]

Other HYIPs

Other HYIPs that have been shut down due to legal action includes Ginsystem Inc, the infamous Sunshine Empire in Singapore, [17] City Limouzine, Future Maker Pvt. Ltd. (~200 million US$) in India, [18] [19] EMGOLDEX or Emirates Gold Exchange, and WorldWide Solutionz in South Africa. [20] [21]

See also

Related Research Articles

<span class="mw-page-title-main">Charles Ponzi</span> Italian businessman and con artist (1882–1949)

Charles Ponzi was an Italian swindler and con artist who operated in the U.S. and Canada. His aliases included Charles Ponci, Carlo, and Charles P. Bianchi.

<span class="mw-page-title-main">Ponzi scheme</span> Type of financial fraud

A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, this scheme misleads investors by either falsely suggesting that profits are derived from legitimate business activities, or by exaggerating the extent and profitability of the legitimate business activities, leveraging new investments to fabricate or supplement these profits. A Ponzi scheme can maintain the illusion of a sustainable business as long as investors continue to contribute new funds, and as long as most of the investors do not demand full repayment or lose faith in the non-existent assets they are purported to own.

<span class="mw-page-title-main">Pyramid scheme</span> Type of unsustainable business model

A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, the process quickly becomes increasingly difficult until it is impossible and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.

<span class="mw-page-title-main">Pump and dump</span> Form of securities fraud

Pump and dump (P&D) is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements (pump), in order to sell the cheaply purchased stock at a higher price (dump). Once the operators of the scheme "dump" (sell) their overvalued shares, the price falls and investors lose their money. This is most common with small-cap cryptocurrencies and very small corporations/companies, i.e. "microcaps".

<span class="mw-page-title-main">MMM (Ponzi scheme company)</span> 1990s Russian Ponzi scheme company

МММ was a Russian company that perpetrated one of the world's largest Ponzi schemes of all time, in the 1990s. By different estimates from 5 to 10 million people lost their savings. According to contemporary Western press reports, most investors were aware of the fraudulent nature of the scheme, but still hoped to profit from it by withdrawing money before it collapsed.

Raymond James Financial, Inc. is an American multinational independent investment bank and financial services company providing financial services to individuals, corporations, and municipalities through its subsidiary companies that engage primarily in investment and financial planning, in addition to investment banking and asset management. Headquartered in St. Petersburg, Florida, Raymond James is one of the largest banking institutions in the United States.

Affinity fraud is a form of investment fraud in which the fraudster preys upon members of identifiable groups, such as religious or ethnic communities, language minorities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are – or successfully pretend to be – members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster's ruse.

<span class="mw-page-title-main">Securities fraud</span> Deceptive practice in the stock or commodities markets

Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information. The setups are generally made to result in monetary gain for the deceivers, and generally result in unfair monetary losses for the investors. They are generally violating securities laws.

Foreign exchange fraud is any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. Currency trading became a common form of fraud in early 2008, according to Michael Dunn of the U.S. Commodity Futures Trading Commission.

James "Jim" Paul Lewis Jr. operated one of the largest and longest running Ponzi schemes in United States history.

<span class="mw-page-title-main">Madoff investment scandal</span> Investment scandal discovered in 2008

The Madoff investment scandal was a major case of stock and securities fraud discovered in late 2008. In December of that year, Bernie Madoff, the former Nasdaq chairman and founder of the Wall Street firm Bernard L. Madoff Investment Securities LLC, admitted that the wealth management arm of his business was an elaborate multi-billion-dollar Ponzi scheme.

International Investment Group (IIG) is an American financial institution that specializes in short-term trade finance and commercial finance with a focus on emerging markets. Through its affiliate IIG Capital it provides financing to small and medium-sized merchants, traders and processors with a need for supply chain financing.

<span class="mw-page-title-main">Telexfree</span> American multi-level marketing company

Telexfree, a trade name owned by Telexfree Inc., was a multibillion-dollar Ponzi scheme disguised as an internet phone service company. Prosecutors have described it as the largest fraud of all time in terms of the number of people affected - more than 1 million, with victims in various countries. The brand became best known for its operations in Brazil held by Ympactus Comercial Ltda after it was involved in an ongoing investigation and trial for operating a Ponzi scheme, and later for having its operations suspended in the US by SEC under the charges of operating a multibillion-dollar Ponzi and pyramid scheme.

The Mantria Corporation Ponzi scheme has been described as the "biggest green energy scam" in United States history. A Federal judge in the Securities and Exchange Commission's civil case found Mantria had scammed more than $54.5 million “by egregiously, recklessly, knowingly, and shamelessly perpetrating a fraudulent scheme” that used “misrepresentations, omissions, and blatant lies to induce unsuspecting and unwitting victim investors to liquidate the equity in their homes and take out bank loans to invest in Defendants’ scheme, which was nothing more than smoke and mirrors.” On November 16, 2009, the U.S. Securities and Exchange Commission charged four people who targeted those nearing retirement age who were seeking real estate and "green" investments. Many of these securities were offered by Mantria Corporation.

Ezubao was a peer-to-peer lending scheme based in the eastern Chinese province of Anhui. It was set up as an online scheme in July 2014, attracted funds of about 50 billion yuan from 900,000 investors, and ceased to trade in December 2015. On 1 February 2016, the scheme was closed down and 21 involved people were arrested. Zhang Min, the president of the parent company, Yucheng Global, told investigators that the company operated as a Ponzi scheme. Following its establishment, Ezubao grew rapidly, masquerading as a legitimate investment opportunity while operating under the guise of peer-to-peer lending. Revelations about the fraudulent nature of Ezubao’s operations emerged after an exposé in late 2015, leading to public outcry and intensified scrutiny by regulatory authorities. The scale of Ezubao’s Ponzi scheme, which orchestrated a sophisticated ruse involving fake projects and returns, was unprecedented in China, contributing to an estimated loss of billions of yuan for investors. The scandal not only devastated the finances of nearly a million individuals but also prompted a nationwide tightening of regulations on the peer-to-peer lending industry, aiming to close loopholes and restore investor confidence.

Mutual Benefits Corporation was a Ft. Lauderdale, Florida based investment sales company that operated a huge ponzi scheme selling viatical settlements, with investors losing an estimated $835 million. The principal ring leader of the scam was Joel Steinger.

USI Tech Limited was a Dubai-based cryptocurrency and forex platform trading provider, suspected to be a high-yield investment program and a Ponzi scheme. Prior to going offline with its users' funds, USI-Tech moved its website from a .com top-level domain, to a .io domain, while also appearing on a number of mirror domains. Joseph Rotunda, Director of the Enforcement Division at the Texas State Securities Board, estimates that the scammers were able to extract hundreds of millions of dollars from all over the world.

Profitable Sunrise was a Ponzi scheme that operated between 2012 and 2013, accepting deposits from members and promising returns on investment of 1.5% to 2.8% per business day, thousands of percent annualized. It solicited members around the world, particularly among Christian communities in the United States of America and in Canada. Profitable Sunrise took in as much as $100 million, an unusually high amount for a high yield investment program, before collapsing.

References

  1. ↑ "High Yield Investment Programs (HYIPs) – Don't Get Scammed". The Department of Financial Protection and Innovation. 18 August 2022. Retrieved November 12, 2023.
  2. ↑ "Warning to All Investors About Bogus Prime Bank and Other Banking-Related Investment Schemes". Sec.gov. 2009-06-12. Archived from the original on 2012-04-20. Retrieved 2012-04-20.
  3. ↑ "HYIP — High Yield Investment Programs Are Hazardous to Your Portfolio". FINRA Investor Alert. July 15, 2010.
  4. ↑ "Investors cash in on web-based scams". BBC News. 23 March 2012.
  5. ↑ "Zeek Rewards, Just an Ordinary MLM?". Archived from the original on 2012-09-05. Retrieved 2012-09-03.
  6. ↑ "ZeekRewards Receivership Website".
  7. ↑ "Zeek Rewards investors could tally 2 million, receiver says". GoUpstate.com.
  8. ↑ "SEC.gov - SEC Shuts Down $600 Million Online Pyramid and Ponzi Scheme". 17 August 2012.
  9. ↑ https://www.sec.gov/litigation/complaints/2012/comp-pr2012-160.pdf [ bare URL PDF ]
  10. ↑ Maglich, Jordan (2012-08-18). "Feds Halt Alleged $600 Million ZeekRewards Ponzi Scheme: How It Happened And What's Next". Forbes.
  11. ↑ Lexington Ponzi scheme founder, 70, gets nearly 15-year prison term for ZeekRewards
  12. 1 2 McCullagh, Declan (2005-01-27). "Lawsuit alleges 'online currency' scam". CNET News. Retrieved 2011-03-30.
  13. ↑ "People in Profit System (PIPS) Scam". Quatloos.com. 2005-03-17. Retrieved 2012-04-20.
  14. ↑ "SitNews – Commentary: PIPS: THE END GAME BEGINS By David G. Hanger". Sitnews.us. Retrieved 2012-04-20.
  15. ↑ Investment Scams. "copy of New Straits Times article dated 11 Oct 2006". Scam.com. Retrieved 2012-04-20.
  16. ↑ Published on January 23, 2008 (2008-01-23). "The Nation, Bangkok, Jan. 23, 2008". Nationmultimedia.com. Retrieved 2012-04-20.{{cite web}}: CS1 maint: numeric names: authors list (link)
  17. ↑ "Investigation into Ginsystem Inc". Cad.gov.sg. Archived from the original on 2007-10-06. Retrieved 2012-04-20.
  18. ↑ "City Limouzine head wanted by three states". Hindustan Times. 2010-04-12. Archived from the original on 2013-01-25. Retrieved 2011-03-30.
  19. ↑ Westhead, Rick (2010-06-21). "Canadian helps crack alleged Ponzi scheme, said to be India's biggest". thestar.com. Toronto. Retrieved 2011-03-30.
  20. ↑ "Worldwide Solutionz confirm Ponzi, about to pull runner?". Behind MLM. 2015-03-26.
  21. ↑ "Tears and anger as WorldWide Solutionz implodes". Behind MLM. 2015-04-11.


This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.