Offered a high yield? Run the other way

Low interest rates at the bank and scary volatility in investment markets has created a market for shady high yield investment programs (HYIPs) that prey on unsophisticated investors, warns the Financial Industry Regulatory Authority, which regulates U.S.securities firms. If you or someone you know are offered a high yield investment that claims to provide safety, liquidity, and above-market interest rates, don’t invest anything, FINRA warns. The FBIs investigations of high yield scams have jumped 105 percent in the last year alone, it says. Hundreds of Internet web sites are touting high safe yields, and thousands of investors have lost money on them. “The reality is virtually every HYIP we have seen bears the hallmarks of fraud,” FINRA says.

A typical HYIP is nothing more than a Ponzi scheme, using payments from new investors to pay out interest to previous investors. The investment programs are not registered with regulators and are sold by unlicensed individuals, FINRA says. The internet has become a prime trolling ground for sales, it says. Hundreds of sites tout individual programs, and other sites purport to “rank” the programs based on their performance. Shady operators have also taken to using social media like YouTube, Facebook, and Twitter to create a false social consensus on the value of the plans. Some web sites even openly acknowledge that HYIPs are Ponzi schemes, but claim to teach investors how to get in early and get out before the scam collapses.

You can spot a potential scam by claims of high, unsustainable yields, an unclear explanation of how the plan expects to make money, lack of information about the operators, operations located outside of the United States, and incentives to recruit new investors. Skepticism is your first defense, FINRA says. It advises ignoring books, seminars, and websites that offer strategies for using HYIPs. You should also recognize undue persuasion at work. Testimonials and rankings are a key tactic of fraudsters. “Remember: credibility can be faked,” it says. Finally, if you have already put money into one of these scams, do not add more.