Believing the HYIP: High Yield Investment Plans and Making Money Online

Last summer, before I took full advantage of the benefits provided by e-mail filtering and multiple accounts, I was getting a ton of daily SPAM (I still get a ton of SPAM, only now it goes where it should: into its own dedicated e-mail account). Much of this unsolicited e-mail had to do with achieving wealth over the internet, usually effortlessly - a concept I had always summarily dismissed. But one day, all booted up with no place to go, I decided to take a trip into internet money-making land just to see where it would lead. Though I can identify, and know the pitfalls of a sexy come-on when I read one, I've never been averse to making money. So I set out on a crash course of making money online, starting with Google. I entered that exact phrase, "making money online", and got some 15 million results. Wow, I thought. Either I wasn't the only one with time on my hands, or something about this concept was sucking people in. Eventually, I would click my way to an online world that I had no clue even existed. And I spend a lot of time online.

In the days and months that followed, I became intrigued with one online money making venture that had gained phenomenonal popularity: HYIPs, or "High Yield Investment Plans". In retrospect, HYIPs had probably reached their peak right about the time I learned of them. Chances are you're familiar with the phrase, "High Yield Investment Plan." Perhaps you've seen it while skimming a prospectus or some other form of investment literature. For the record, legitimate high yield, short term investments do exist, and they are a totally different animal from what I'm talking about.

HYIPs - the acronym is pronounced, ironically, just the way you think - are tailor-made for our Right Here, Right Now generation. That's right. One of the many things the World Wide Web has brought us is the expectation of instant access. We want our information, our relationships, and our wealth at the click of a mouse. HYIPs provide this immediacy by giving you the ability to watch your money grow exponentially, incredibly, and even better, daily - online.

That is, assuming everything goes according to plan. Frequently it does not, however, and that's when many a starry eyed wealth builder runs into trouble. Fortunately, I happen to be more parts cynic than idealist, so it didn't take a great deal of sleuthing to find that these are essentially thinly disguised ponzi schemes - which, according to the Federal Trade Commission and the Securities and Exchange Commission, are illegal.

Simply by virtue of the way they are structured, even the best run ponzis are destined to fail because in order for someone to win, someone else has to lose. It is also important to note that the fact that there may or may not be deception involved about the nature of a ponzi (false claims of investing in goods or services) makes it no less illegal.

Step right up...

The infamous scheme named after Carlo Ponzi was first launched in 1920 to great success. Brilliant in its simplicity, it worked on a simple premise: get people to invest in a nonexistent product or service, promise an outrageous return after a specified number of days or weeks, and use the money from new investors to pay off old investors who cash out. Ponzi's plan did have one fatal flaw, though. When new money stopped coming in at a rate sufficient to pay out people who wanted to withdraw, the cycle collapsed. This was inevitable, for the simple reason that no investment vehicle can have a steady inflow of new investors forever; if for no other reason than the fact that the Earth's population is not infinite. But here's a funny thing about human nature: Where money is involved, it is not highly unusual to see ethics and common sense take a flying leap. What this means is that people may be aware that they are building their dreams on a house of cards, but will tend to ignore that fact and take their chances until they've been burned themselves.

This is the reason countless variations of Ponzi's scheme have been able to proliferate for nearly a century after his death. From day one, there has never been any shortage of dreamers and schemers in the world. And conveniently, the World Wide Web has given them all one huge playground in which to romp.

The blueprint...

The way a HYIP works is as follows: Using an online payment processor, you make a "spend", or a deposit, into the plan of your choice. Generally, there will be a variety of plans, all displayed on the home page of the program (In November 2005, a typical HYIP offered plans ranging from 35% profit after four days, to 450% or more after 10 days). After your plan has matured, you have the choice of either withdrawing the money or rolling it over into another plan. By the way, if you are thinking four or 10 days is a very short time for an investment, I want to reiterate that there are no similarities between the way a HYIP operates and the way a stock, mutual fund, or certificate of deposit does, so throw out that whole paradigm. The only common element is that with all of them, you hope to eventually take more money out than you put in.

The potential returns are mind boggling. Enough to make many take the plunge, ponzi or not.

HYIPs are run by an administrator, or "Admin". This would be anyone who woke up one morning, bought a template, or script off the web, and decided to start one up. The lifespan of a HYIP can range anywhere from a few hours to several months, depending upon how quickly it runs into problems. The main reason for the demise of a HYIP is always money. Because they act on Ponzi's Principle, once the withdrawals start exceeding deposits, you can kiss the program goodbye, along with your money.

Also, since these are businesses run almost exclusively over the Internet, other problems can come into play that don't even involve a faulty business model. Databases can be hacked, money stolen. More than one HYIP has been permanently disabled when the admin's payment processor account - the one that holds all the money - was emptied because a security vulnerability in the script was exploited. Or so many an admin has claimed. The hacker alibi has been used so often as the reason for a HYIP's demise that members have reasonably speculated as to whether or not an Admin simply ran off with all the cash before it had a chance to die of its own accord. And members have also had the unpleasant experience of discovering their own payment processor accounts were hacked. You can never be certain as to why a HYIP collapses, just that it will.

Trust me...

Admins frequently make posts on message and discussion boards devoted to the subject of online investing, and, early in a program, will work to gain the trust of online speculators by cultivating an image of accessibility, honesty, and program transparency. They encourage people to make spends into programs they have just started. An admin may have other people assisting her in this regard, people who will regularly make posts about how excellent the program is and attesting to the admin's good character. Recently, many HYIPs have attempted an image makeover: they now define themselves as "games" or "programs" rather than investments. You are a "member" making a "spend" into said "game" or "program". There are a couple of reasons for this: 1) The Securities and Exchange Commission requires that one have a license to sell securities and generally speaking, HYIP administrators do not. A typical admin may never have even bought a share of stock in his life, let alone possessed a Series 7 license. An admin could be your barber, your babysitter, or a barber or babysitter in another country. 2) By stating that it is a game, this supposedly eliminates the obligation on an admin's part to disclose how your money is being "invested" (Some still, however, will claim that at least a portion of member spends are being invested in the forex market, though I have not found a single instance where that could be verified). Again, such simplistic nods to disclosure do not provide a safe haven for these schemes under the law. "Robbing Peter to pay Paul" is not a legally viable foundation upon which to build a business.

If you wander to the discussion board of any HYIP - and there are hundreds of them, though decidedly fewer than just six months ago - chances are you will find several lively threads debating the merits of "xyz HYIP" and whether or not the Admin is a scamster. This discussion becomes most lively when payments start to slow, as that is a clear indication that the clock is running out on that program. But sometimes there is no forewarning at all; the program just vanishes. You find out by reading an apologetic note posted on the website by the admin: "Sorry. Hackers kept getting in my back office. I tried to keep this going as long as I could…" or something equally succinct.

Occasionally, there will also be a promise to refund those who had active spends or were due money when the program ended. Then again, sometimes there won't, and you will never "see" that admin on the internet again, at least under the same handle. In the end it doesn't matter, though, because even if promises were made, they will likely not be kept. Assuming the admin didn't outright rip everyone off and, indeed, could be trusted, the program ran out of money because that's what happens. As a result, there are better-than-average odds that you will never see a refund of any money you lost. Seriously. If you think I'm being redundant, I could point you right now to discussion boards of HYIPs that folded months ago, and you will find people posting who still believe they will be paid. They are believers, and anyone who disagrees is, to them, a naysayer. Can I get an Amen dot com?

Stuff happens?

If you got burned by a HYIP, then chances are your feelings are, Darn tootin' it was a Ponzi, and the admin is a bleeping thief (I've cleaned up your feelings for you). You might even be kicking yourself for being so greedy or naïve and have taken a blood oath to stick to Certificates of Deposit from now on. 3% a year may not be much, but you don't have to worry about the bank president stealing it out of your account and running away to Cancun.

On the other hand, if you think you lost money because you had bad timing, or bad luck, or Mercury was in retrograde; if you believed in the admin, or if you happened to actually be in the money at the time the HYIP went under; if you are convinced that, despite the outcome, the admin ran an excellent program, and he was a stand-up guy... well, I can guarantee you that there is an admin out there right now hoping that you'll visit her website. And you might want to do that soon, because, as I write this, internet schemes are being investigated with unprecedented vigor by the SEC, and in several cases, the FBI. The outcome of it all will undoubtedly influence how the "game" is played in the future, or if indeed, it will be played at all. Stay tuned.