High Yield Investment Programs and other Ponzi Scams Podcast (S1E5)

We look at some of the modern Pyramid and ponzi schemes that are doing the rounds making investors lose money.These include bitcoin scams & crypto fraud
Introduction to Little Saves podcast on Personal finance


(Podcast Transcript)

Hi Guys,

How are you doing? Welcome to Season 1, Episode 5 of my Little Saves podcast on Personal Finance. Every episode, I bring you a new and unique aspect that looks into personal finance. Today we are going to be talking about the rampant High Yield Investment scam that are doing the rounds online.

You might has seen some ads that promise you a daily interest of 2% on your investments. I am not joking. They claim to give you a daily interest of 2% on the money you invest. Meaning within in one month you get 80% returns on your fund.

Don’t believe it. Not even for one second! These fake investment programs are a modern twist on the old Ponzi Scheme. These are also known as Pyramid schemes. Here is how they work.

HYIP and Ponzi or Pyramid Scheme

The fraud sets up a modern website that promises huge returns. This may be 1% or 2% per day or even a somewhat believable 20% per month. Then they start advertising looking for investors.

They claim various basis for making money with your investment. It could be

–       Oil Drilling business that has huge revenues

–       They have a crypto mining business that mines a lot of crypto coins

–       They trade in cryptocurrencies and use your money on a proven money making stragtegy

–       They buy and sell diamonds and precious metals

Any kind of believable business model is cited as the basis for making this huge amount of money.

Once the scheme starts getting investments, the fraudsters start paying small amounts of interest back to initial investors. These initial investors start believing that there is really money in this and do two things.

1.)   They put in more money

2.)   They tell others and by word of mouth get more funds

This becomes a kind of pyramid (hence the name Pyramid scam). As more investors join, part of the money they invest is used to pay the older investors.

At one point of time, when the scammers running the HYIP have accumulated a lot of money, they will simply close the website and vanish.

You will never be able to find them or your money ever again.

My experiences with HYIP

I have been aware of High Yield Investment schemes for a couple of years now. About a year back, I tried to see if I could game the system by being the early investor in a few sites. I took Rs.3000 and split it up and invested it in a few HYIP portals. Then I simply tracked the flow of events. Of the total investments, I only ended up making back Rs.600 back. The programs I invested in closed within a month, I was expecting them to be open for atleast a few months.

The reason is that with online payments, ease of investing in these portals with cryptocurrencies such as Bitcoins and Ethereum and some good marketing by the scammers make it easy for gullible investors to fall for it quickly.

Few tips to spot Fake investment opportunities

  • Research, research, research. Dont leave anything to chance. Read through any material you can get on the investment opportunity
  • If the returns sounds too good to be true, it probably is not true. Get some expert advise having other people look into it helps remove you biases
  • Bitcoin scams are quite common these days. Be very cautious when transferring bitcoins or other cryptocurrency to anyone online. Once the crypto currency leaves your account, no one in the world can get it back for you. As these are unregulated, there is no government or policy agency you can complain to
  • Use https://who.is/ to check how old the website is. You can also use https://archive.org/web/ to check how the website was initially. This is to safeguard from some frauds who buy old not in use websites and then redo them to build trust easily.
  • Most of the advertisements for these ponzi or bitcoin scams are via internet digital channels such as Facebook, Twitter, other social media site
  • Check for the registrations and certifications the business has. See what people are talking about it on Social Media. Most of these scams are set up and closed within a few months, so they will have very little social presence.
  • Contact the business, check their privacy policy, see other information on home and other pages to see if they are legitimate. In most cases the main page may be good, but there will be a lot of grammatical and errors on other pages of the site. Most of these scams are by frauds who do not speak English as the first language

So, I have given you sufficient idea of how these schemes work. Like the saying goes, “A fool and his money are soon parted”. That does not apply to you in this case any more as you are much smarter and know exactly how to spot these ponzi scams!

I have written in detail about my experience with HYIPs here.

Thanks for listening guys. Stay tuned and drop by next Tuesday for another Little Saves podcast episode on something different in the world of Personal finance.

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Abhi is a 29 yr old Indian, on FIRE to retire by 40. He has been investing and learning Finance for the past 12 years. After completing Mechanical engineering, he started working in a multi-national Bank and grew to become an AVP. Currently with an IT MNC as a VP. He lives in Bangalore with his wife and their 1 year old daughter. In his free time, Abhi loves to game on the Xbox, watch movies, read and blog.

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