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High-yield investment program

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HYIP stands for High Yield Investment Program. HYIPs are purported investment programs normally offered via the Internet. HYIPs typically accept investments of $100 or less while promising high returns. The introduction of e-currencies such as e-gold and StormPay (although almost all HYIPs do not use StormPay as of February 2006, see StormPay article for why) has made it easy for HYIPs to operate across international boundaries, and to accept large numbers of small investments.

No HYIP has, as yet, survived for very long without turning out to be a scam. Scam HYIPs are Ponzi schemes, in which new investors (usually unwittingly) provide the cash to pay a profit to existing investors, which they could then withdraw leaving nothing to pay the new investor. This approach allows the scam to continue as long as new investors are found and/or old investors leave their money in the scheme, known as compounding (because even higher profits are promised).

HYIPs are frequently advertised in spam emails, forums or mailing lists, since people are typically given a commission (for example, 9% of invested funds) when they provide a referral of a new customer.

HYIPs typically are not based in the United States, Europe, or Japan - countries that have strong laws against unregistered investment programs. HYIPs disclose little or no detail about the principals, management, location, or other aspects of whom is getting the money to be invested, and relatively little information (other than asserting that they do various types of trading on various stock and other exchanges) on how their investment programs actually work.

The largest HYIP scam that has ever existed is PIPS (People in Profit System or Pure Investors)[1], [2]. The investment scheme was started by an engineer, Bryan Marsden, in 2004 (according to the Wayback Machine record of http://pureinvestor.com) and spanned more than 20 countries in the world. PIPS is now being investigated by Bank Negara Malaysia.

According to a website, HYIP Scam Search, that maintains a database of HYIP scams daily, as at May of 2006, the total number of HYIP scams was approximately 3500. This is the total number of scams occurred from 2004 to 2006 and excluding scams not reported. About 5 new scams are reported every day. 89% of the scams preferred e-gold as their online payment processors than others [3]

Interest rates

HYIPs typically claim to offer interest rates of 1% or more per day on invested funds; many claim to offer much higher daily rates reaching 250% a day.

Such high interest rates raise the question: why would any business that can earn such profits, legitimately, bother to look for small investors? Such unusually high yields should tip off investors that there are serious risks involved.

As a comparison with a typical 1% per day claim, Warren Buffett, the world's most successful investor, made around 30% per year during his most successful period, i.e only less than a tenth of one percent per day. If it is assumed that such huge claimed returns as 1% per day cannot in fact be produced legitimately, all HYIPs are therefore likely to be Ponzi schemes, and so most investors will in due course lose their money.

Games

As a result of online forums and monitoring sites which have made customers of HYIPs more aware of the risks they are taking, a different sort of "honest" HYIP began springing up in the early months of 2006. Basically, the HYIP owner calls his or her program a "ponzi-structured game" where one should "not invest money one cannot afford to lose", and where there is "never a guarantee of earnings or refunds". They promise to pay out up to (for example) 95% of deposits, the rest going to hosting or other fees and the owner's profit.

In such "games", the first participants ("investors") may make a good profit and are encouraged to refer other people to the program because of referral commission, the fact that they have already made back their principal and are playing with profit, and that the more people who deposit money, the more money can be paid out to participants. In theory, strategies can be developed to maximize profit using these games (but, of course, since this is a zero-sum game, such strategies work by taking advantage of ignorance or errors by others). Some forum users may gain a reputation whereby others will trust their word that they have been able to withdraw their profits, encouraging others to invest in the hopes that more will invest after them and that they can therefore make a profit. As these games are by definition Ponzi schemes, it is inevitable that the vast majority of investors who are not at the top of the pyramid will lose their money.

These "games" might be considered as online gambling or lotteries. Gambling online is of questionable legal status in the U.S. and other countries, and lotteries are regulated in the U.S. and are clearly illegal online. However, the odds of winning cannot be determined, as one cannot know whether one is playing early enough to win money (that is, whether a sufficient number of new participants will follow). Thus, these activities are unlike a lottery or other forms of gambling, where a player has an equal chance of winning no matter when a ticket is bought, or where the odds of the game are known.

Furthermore, the promise to pay out a percentage of deposits is not a legally binding contract or regulated by a government agency.

HYIP monitors

HYIP monitor or HYIP listing/rating site refers to a website that promotes HYIP with a listing system and receives referral commissions from hyips. All of them use similar type of listing system. Usually, the monitor invests some money into each hyip program advertised by them, then labels it as paying if it pays interest to them on time, labels it as scam after it stops to pay. The problem is, sometimes a program pays only the monitors to maintain a "Paying" status. Sometimes, a program stops paying and runs away after they have amassed a large enough amount of money. The monitor is not able to prevent this from happening. They do nothing to help recovering the money or tracing who is behind the ponzi scheme. The investors are always the losers. Although promoting/perpetuating ponzi scams is a criminal offense punishable by jail terms or fines in most countries, listing sites are seldom made to take responsibility when their hyips scam their visitors. Most of them put up a disclaimer saying that "we do not promote the hyips advertised on our website". However this is far from the truth as advertising automatically means promotion. [4] is a list of hyip monitors that are now active on the internet. Some hyip monitors also have discussion forums of their own that facilitate recruitments of new investors into their listed hyips. These are often carried out by cheerleaders or shills, who are advocates of hyips. They share the same belief that an hyip is not a scam but a good money-making opportunity as long as it pays.

See also

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