High-yield investment program
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. Most of these scams work from anonymous offshore bases which make them hard to track down.
How the scam works
Operators generally set up a website offering an "investment program" which promises returns as high as 45% per month or 6% a 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." 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."
Though Ponzi schemes have existed since at least the early 1900s, the rise of digital payment systems has made it much easier for operators of such websites to accept payments from people worldwide. Electronic money systems are generally accepted by HYIP operators because they are more accessible to operators than traditional merchant accounts. Some HYIP operators opened their own digital currency companies that eventually folded; these companies include Standard Reserve, OSGold, INTGold, EvoCash, and V-Money. StormPay was started in the same way in 2002, but has remained in business even though the HYIP that it was created to serve was shut down by the State of Tennessee.
Some HYIPs have incorporated in countries with lax fraud laws to secure immunity from investor laws in other countries. The operators have been known to host their website with a web host that offers "anonymous hosting". They will use this website to accept transactions from participants in the scheme.[original research?]
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.
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. New investors had to pay a monthly subscription fee of between US$10/month to $99/month 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. Paul Burks paid $4 million to the SEC and agreed to cooperate with its investigation.
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 USD $250 million. 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."
PIPS (People in Profit System or Pure Investors) was started by Bryan Marsden in early 2004 and spanned more than 20 countries. 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 $20 million.
Another large case took place in Thailand in 2008. Colonyinvest cheated 50,000 Thai investors out of about 5 billion Baht (~ 150 million US$).
Other HYIPs that have been shut down due to legal action include:
- Geniusfunds inc. (Cyprus)
- Ginsystem Inc. (Singapore)
- Solidinvestment (United States)
- City Limouzine (India) Pvt Ltd started by Sayed Mohammed Masood and Chand Syed Masood. (India and United States) 
- Charles Ponzi
- Cherry Shares
- Forex scam
- Internet Crime Complaint Center
- Ponzi scheme
- Pyramid scheme
- "Prime Bank Fraud Information Center". Sec.gov. Retrieved 2012-04-20.
- FINRA Investor Alert, HYIP — High Yield Investment Programs Are Hazardous to Your Portfolio (July 15, 2010) (available at http://www.finra.org/alerts/HYIP).
- IT Crime – Information security and crime prevention
- Prime Bank Fraud: SEC Internet Actions[dead link]
- Mark Ward “Investors cash in on web-based scams”, BBC News, 23 March 2012
- Receiver: Zeek investors could tally 2 million
- McCullagh, Declan (2005-01-27). "Lawsuit alleges 'online currency' scam". CNET News. Retrieved 2011-03-30.
- "People in Profit System (PIPS) Scam". Quatloos.com. 2005-03-17. Retrieved 2012-04-20.
- "SitNews – Commentary: PIPS: THE END GAME BEGINS By David G. Hanger". Sitnews.us. Retrieved 2012-04-20.
- Investment Scams. "copy of New Straits Times article dated 11 Oct 2006". Scam.com. Retrieved 2012-04-20.
- Published on January 23, 2008 (2008-01-23). "The Nation, Bangkok, Jan. 23, 2008". Nationmultimedia.com. Retrieved 2012-04-20.
- "Investigation into Ginsystem Inc". Cad.gov.sg. Retrieved 2012-04-20.
- "Solidinvestment.com investment scam". WORLD Law Direct. Retrieved 2012-04-20.
- "City Limouzine head wanted by three states". Hindustan Times. 2010-04-12. Retrieved 2011-03-30.
- Westhead, Rick (2010-06-21). "Canadian helps crack alleged Ponzi scheme, said to be India’s biggest". Toronto: thestar.com. Retrieved 2011-03-30.
- Warning to All Investors About Bogus “Prime Bank” and Other Banking-Related Investment Schemes, U.S. Securities and Exchange Commission
- Ponzi Schemes with traits common to HYIP, Royal Canadian Mounted Police