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Why HYIP's (High Yielding Investment Programs) Are Always A Scam

Updated on October 4, 2009

And Blatantly Illegal Ponzi Schemes

An HYIP is the term used to describe programs which promise a certain return on investment over a specified period of time. This high-yielding investment programs are blatantly illegal Ponzi schemes - scams run either by unscrupulous people or people ignorant of simple math who may unwittingly think they have discovered a way to guarantee profits for everyone who joins. Now, do not confuse these with what a bank does. For example, when you open a savings account, you are quoted a certain rate of return. However, there are major differences between what a bank does and what these fly-by-night Ponzi schemes do.

Before I lay out these important differences, let me give you some advice on how to spot an illegal Ponzi scheme. By the way, this is the same kind of scheme that the infamous Bernie Madoff perpetrated for billions of dollars. Don't think that a shrewd scam artist is going to use the term "HYIP." No, they will use some exotic-sounding term to entice you to invest in their schemes.

For example, one of the newer types of scams is auto surf programs. Anyone who has actually used these auto surf programs knows that they are almost worthless, so the price you pay is really just a scheme to bring in enough money and members to keep the scheme going. So don't get hung up on the phrase "HYIP" because that is just a shorthand term to describe these illegal Ponzi schemes.

If you are introduced to an investment program that has the following two features, it will be illegal in almost certainly 100% of the cases. And don't believe claims that they are perfectly legal, revolutionary, foolproof, etc. Of course, a scam artist is going to claim the program is legal:

1. The program promises a certain percentage return on your investment per day or per month or some other period of time; and

2. The program pays you a commission for referring other new members to the program.

If a program has just these two features only, that's all you need to know to stay away and keep your money safe from these Ponzi scam artists.

Now, here is why these HYIP Ponzi schemes are illegal scams. The reason is that return payments are funded not by actual investments. They are funded by the money coming in from new members that are referred to the program. It's a shell game, and the reason it is illegal is because the program can no longer pay returns AND cannot even pay back the original investments as soon as new members are not found to keep joining the program.

Legitimate investments are tied to the actual sale of products or services. When you invest in WalMart stock, for example, you are investing in their service of selling general merchandise in their stores. You aren't being paid back money from new stockholders. The dividends or price increases in stock are related to actual sales of products, not a money shell game of trying to recruit new investors.

Example:

1. An HYIP program promises a 12% return daily. Believe it or not, some operators of these have been so bold as to make this very claim. That was the 12dailypro program, and of course they were raided by the government and shut down.

2. Let's say the program has recruited 100 people who have invested $1000 each. That's $10000 that has to be paid back PLUS the promised 12% daily. If they promise to pay back weekly, that's already $1840 minimum each that they have to pay back to those 100 people.

3. The program already has to approximately double the memberships to pay back that money.

4. In subsequent weeks, the program would have to double its membership all over again.

In Week 2, they will need around 200 people. If the first 100 have reinvested, then they will need 400 investors for Week 3. Considering reinvestments, then Week 4 would require 800 members.

Week 5 - 1600 members

Week 6 - 3200 members

Week 7 - 6400 members

Week 8 - 12800 members

Week 9 - 25600 members

Week 10 - 51200 members

Now, do you see where this is going? It won't take long until the entire world's population would be run through, making it impossible to pay back even the original investments.

Now, why is it not illegal to invest your money in a bank? Simple. The bank does not have to recruit new investors to pay you back. They take your money and invest it in stocks or other legitimate product-based investments or use it to lend money to other bank customers. Of course, the amount they pay is not some pie-in-the-sky return pulled out of the sky, either. It is based on the federally established rates that prevail in the local economy. Finally, banks (at least those in developed countries) can back your investments with federally regulated insurance programs. Of course, no such insurance program is going to exist for these HYIP Ponzi schemes that seem to appear out of thin air, especially on the Internet.

Yet, it never fails that these programs attract the get-rich-quick crowd. This is greed on both sides. If you are interested in making money, you need to either invest it in a bank or stocks or bonds or mutual funds. Alternatively, invest in your own business or a business where you actually know the people who are running the business and have a reason to trust their judgment in business matters.

Now, some people will swear by these Ponzi schemes, saying that they made money in them before. While it is true that some early movers have made money, you have to consider four major risks:

1. The program operators may be out-and-out scam artists and just keep all your money;

2. You will generally join too late, which means there won't be enough members joining after you for you to recoup your investment;

3. You may join early and be one of the lucky ones to get your money back. But you will then be thirsty to invest even more or reinvest all your returns. Eventually, the program will stall, and you will lose all your money, anyway; and

4. Finally, when the government comes swooping in and closes the program, you probably won't get your investment back even if you got in fairly early.

In only one scenario can you make money with these programs - you get in real early in a program that is successful in recruiting new members, the program operators actually intend th return your money, and the program operators are able to return your funds before they are shut down by the government. This is a very narrow set of circumstances, and you simply can't predict when those circumstances will occur.

Simply put, you don't want to invest in anything but federally regulated opportunities or private business opportunities where you know who is running the program and know exactly how the money is being invested.

Finally, if any program takes investments from new members to pay back the earlier investors, that is not an investment plan. It is an illegal Ponzi scheme, and you will either be ripped off eventually or have your money confiscated by state or federal authorities. That is the only guarantee in an HYIP, and that's not a guarantee you want to invest in.

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      haroon 6 years ago

      heyhhhhey

    • misstake101 profile image

      misstake101 8 years ago

      wow, I really love your hub and your writing skill is so intriguing! Keep it up

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