OSC Investor News

Beware: High-yield Investment Programs are Ponzi Schemes

January 11, 2013 In the current environment of low interest rates, Canadian financial institutions are paying historically low interest on guaranteed investment certificates. At the same time, some websites are advertising unrealistically high investment returns.

These websites are promoting products known as high-yield investment programs (HYIPs). How can HYIPs offer such high rates of return? The answer is simple – they can’t. These are classic Ponzi schemes. The promoters of these schemes do not invest funds received from investors. They keep most of the money for themselves, paying out small amounts of money for a short period of time to maintain the illusion of high returns. Any payments made to investors come from money invested by subsequent investors.

In an attempt to add credibility to these scams, there are websites that pretend to rate HYIPs, giving the appearance that some HYIPs are more solid than others.

Although HYIPs vary, they share some common characteristics:
  • unbelievably high returns are offered;
  • returns are described as “guaranteed”;
  • the investment is described as “no-risk”;
  • a “proprietary” investment technique is claimed but no details are provided;
  • the company, its principals and promoters are not registered with any securities regulator; and
  • it is difficult or impossible to contact the people behind the program.
Some HYIPs will show investors what appears to be an online account statement, indicating tremendous returns. However, when investors try to get their money out of the investment, the HYIP simply ceases to operate and those behind the scheme disappear with the money.

Investing with a HYIP will likely result in the loss of all invested funds.