There are a number of safe investments on the market today, but their interest rates are running from .01% to 1.5% per year. This more or less means that any investment that is offering anything above 1.5% per year is most likely a scam.
High-yield investment programs (HYIP) already make individuals nervous. The fact is that they can sometimes be shady. Even the regulars acknowledge that HYIPs tend to become the subjects of Ponzi and pyramid schemes. Unfortunately, this is one area where regulators don’t spend a lot of their time or put in a lot of effort. The reason is because these are cases that are hard to prosecute, although some are prosecuted and they win if there is enough evidence.
At the same time, there are instances where securities regulators are accused of doing too much, such as when cease-and-desist orders were filed against Profitable Sunrise. Profitable Sunrise was a high-yield investment program that achieved a rather significant mass, which managed to suck dry some of its ordinary investors. Now there are actions against Profitable Sunrise in over 25 states. The ones that accuse regulators of doing too much are those that are still true believers in the program, although there were a lot of investors that had reported their losses, indicating a scam. The estimates as to how much money Profitable Sunrise took runs around $100 million.
The Scams
Unfortunately, there are a lot of programs out there like Profitable Sunrise. The SEC would go after every one of them if they knew about them. They say that not all investors report what could be scams. The reason why regulators went after Profitable Sunrise is because they did hear about them.
Basically, all regulators have been able to do is issue blanket warnings about the dangers of HYIPs. They have done so in the past. At the same time, this falls into the same category as the Surgeon General issuing warnings about cigarette smoking; it hasn’t changed the habits of most individuals. They still become suckers without meaning to. All they want is to achieve higher returns faster so they can watch their money grow. Nonetheless, the end result is the loss of most, if not, all of their money.
The Warning Signs
There are two factors to look into when it comes to HYIPs. The first is how much of a daily return is promised and the second is how long the money is going to be tied up. Typical promises of 1% to 4% may or may not be valid. You know if that promise exceeds 1.5%, you had better be wary. If anyone claims that an investment is going to produce returns more than 100% per day, then you can laugh at the strange brand of confidence being displayed. If there are any numbers that the program shows to prove that performance, there is a chance that the program is offshore, claiming that keeping operations offshore allows them to operate in a more profitable way. These offshore accounts are not always exempt from most security laws and these programs make it almost impossible for investors to manage their accounts in a meaningful way.
Nonetheless, there are investors who try to play this offshore game, knowing that it is laden with fraud, but they try to get in and then get out quickly after they grab a few quick and easy dollars that are paid up by the losers in the deal. The goal is to get out before the scheme collapses.
The victims are those that don’t play the game. They are the ones who are frustrated with the banks and stock market and are looking for something different. What happens is they fall for a story that seems factual.
To prove to the new investors that the HYIP will work, tiny bets are encouraged. For example, invest $5 at 3% per day for 14 days. When the term is up, you have $7. After having some success on tiny bets, the amount goes up. This time it goes up to $50 for a longer period and with the promise of a larger return. By the third time, they are hoping you’ll put down hundreds or even thousands of dollars.
The truth is that the returns tend to be on paper only. Investors are now so used to believing on what is on their paper statements and communicated to them electronically that they put a lot of trust in the documents.
How The Schemes Work
These schemes, which always make “too good to be true” promises, go on for as long as possible by drawing in new money to pay off the individuals who invested first. This is why those who come in later in the game tend to be the losers in the deal. When the scheme stops working, the program may stop paying and then disappear completely. The folks behind it then start a new scheme under a new name that is much like the old one so that the successful investors in the old scheme will recognize it and sign on.
Some of the plans may even throw in some multilevel marketing, which is also called affinity fraud. This helps pull in as many people as possible.
Profitable Sunrise is the perfect example of all of the above. They promised investors that their investment of $2,500 would bring returns of 2% for 180 days. They promised that the plan was “risk-free” and that a leading investment bank insured the program. To make it seem legitimate, it had to disclose its financial health and also identify the bank that they said was providing them with the guarantee.
Suddenly, the Profitable Sunrise website went down and the message to investors was that the company had to migrate its servers. It has been presumed that these servers are “moving” to a country that doesn’t have an extradition agreement with the United States.
While this scheme seems so inflated that you would think it could not dupe anyone else, it had. The actions by regulators have opened the eyes of some of those individuals, but not before they lost a lot of their money. Unfortunately, regulators cannot protect investors from these schemes. Instead, investors have to protect themselves and it starts with knowing that any program that promises returns upward of 1.5% deserves a little more investigation. If it is promising 2% and above, then you better run toward a more realistic investment.