Friday’s Fraud: Hot Air is Not Just for Balloons

By Kori Eskridge, Fall 2014 Intern

balloonsIf it sounds too good to be true, it probably is. That’s what many investors have learned after investing in high-yield investment programs (HYIPs). HYIPs, also called Prime Bank Investments, offer extremely high daily, weekly or monthly rates of return via the Internet but often, as the SEC noted, those returns are just a bunch of “hot air.” Typically, these Web sites will have little to no information about the company’s location, management or its investing tactics.

These types of investments are extremely easy and inexpensive for fraudsters to set up. With a little Internet savvy, some flashy pictures and good graphics, anyone can start their own HYIP. These sites are appealing to investors looking to make quick money because it looks like a legitimate investment. Investors are offered savings accounts or funds that purport to invest in legitimate securities promising exorbitant returns.  Investors send money through online payment systems or wire transfers and then have an account accessible on the Internet.  Typically, an investor will see high-yield returns in their account or may even receive payments; however, the money is usually that of other investors, not returns from the investment.

While these investments may seem hard to spot, there are some common red flags that can help you identify possible fraud:

 

  • Sounds Too Good to Be True – compare promised yields with current returns on the stock indexes. If it seems much higher, the risk is probably higher too.

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  • Promises of Guaranteed Returns – there is no such thing as risk-free investing

 

  • Knowledge About the Company – the more you know, the better informed your decision will be. According to the SEC, “If you’ve never heard of a company, broker or adviser, spend some time checking them out before you invest.”

 

  • Time is NOT of the Essence – If it’s a legitimate investment, a little time on the front end for research and good decision making will not keep you from being able to take advantage of the opportunity.

 

  • Understand the Investment – Fraudsters often use big words and technical phrases to trick investors

For additional resources on how to spot and prevent high yield investment program fraud, check out this article on the SEC’s Web site.