High-Yield Investment Program (HYIP)
A High-Yield Investment Program (HYIP) is a type of Ponzi
Scheme, which is an investment scam.
At one time, 'HYIP' was used in the financial services sector to refer to an
investment program which may have offered a high return
on investment. The term "HYIP" was abused by the operators of scams to
camouflage their scams as legitimate investments. Due to this overuse by the
operators, HYIP has become synonymous with scam or Ponzi
Scheme. The usage of the term has evolved to refer to a kind of Ponzi scheme
that recruits "investors" through the Internet.
Due to the widespread abuse of this term by Internet Ponzi schemes, reputable
financial services no longer label themselves as "High Yield Investment
Online HYIP schemes rarely last for the long term. Overwhelming number of
cases suggest that HYIPs are Ponzi schemes, in which new investors provide
the cash to pay a profit to existing investors, which they typically then
withdraw. 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).
HYIP operators generally setup a website offering an "investment program"
with returns as high as 45% per month or 6% A day that discloses little or
no detail about the underlying management, location, or other aspects of how
money is to be invested because no money is invested. They often use vague
explanations, asserting little more than that they do different types of
trading on various stock markets or exchanges to generate the returns they
HYIPs may also mirror Pyramid
Schemes by offering current investors incentive commissions, for example
10% of current investment, to recruit new investors.
Such programs are doomed by designed and fundamentally flawed. Such
programs are appealing to people’s greed, while promising making quick money
(at the expense of someone else).
HYIP Investment Games
As a result of online forums and monitoring sites which have made HYIP
"investors" more aware of their nature, some HYIP operators promote their
programs as 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
schemes, it is inevitable that the majority of participants who are not
at the top of the pyramid will lose their money. These "games" might be
considered as lotteries.
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 regulated gambling, where a
participant has an equal chance of winning no matter when a ticket is
bought, or where the odds of the game are known. HYIP programs generally
appeal to the same kind of person who is attracted to gambling. Like
gambling, HYIP "games" are a way of separating the participant from his
money, while offering a small chance of making a profit. This accounts for
their rapid proliferation.
HYIPs generally appeal
to emotions of investors who are looking to "get something for nothing".
Unfortunately, often those who play become part of the scam. They are
encouraged to promote it in order to receive payment on their investment. In
this aspect, it mirrors a Pyramid
scheme in that users must recruit others in order to profit.