When a potential investment promises a very high yield with little risk, you have to wonder. If it’s so great, why isn’t everyone investing in it? Why is it being made available to me?
That’s because investment programs that offer returns of 30% or more without much risk are probably scams. In fact, this specific scam is called a “high-yield investment program” or “HYIP” scam.
Many people think they would easily be able to spot one of these scams. Surely they’re not convincing to an experienced investor, right?
They can be very convincing. Just consider the pitch of one alleged HYIP scam the SEC uncovered in SEC v. Karpavicius. According to the SEC’s complaint, the agency found websites claiming that the defendants’ mutual funds had enjoyed a “50% + Average annual return for the past 5 years.” The SEC says that was a lie and a scam.
One of the websites was highly detailed:
- Executives from the allegedly fake mutual fund are pictured with linked biographies.
- Graphs were used to illustrate the performance of the fund over time.
- There was a seemingly detailed annual report, prospectus and fund fact sheet available on the website.
- The defendants allegedly drove web traffic to these websites by issuing press releases through a major news distribution service.
It was convincing enough that the defendants raked in $4.1 million from investors. According to the SEC, there was no actual mutual fund. The millions they raised were used primarily for the defendants’ personal benefit. Only a small portion was reserved for return to investors – and that was to pay out a supposed dividend in order to keep the scam running.
Stick with registered investments sold by licensed brokers or investment advisers
Most HYIP scams involve unregistered securities. Unregistered security offerings are not subject to the same laws that protect investors, such as disclosure requirements. If you buy unregistered securities and you lose your money, you may have an uphill battle getting any of that money back.
If your broker or investment adviser has recommended you invest in unregistered securities, you may wish to check on your risk profile. Unregistered securities are risky and not an appropriate investment for many people. If your broker or adviser has recommended them inappropriately, you may be able to recover some of your lost money through a FINRA arbitration.