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Thursday, July 15, 2010

FINRA Warns Investors of Social Media-Linked Ponzi Schemes, High-Yield Investment Programs

The Financial Industry Regulatory Authority (FINRA) is warning investors about Internet-based Ponzi schemes called high-yield investment programs (HYIPs), which purport to offer returns of 20, 30, 100 percent or more per day.

HYIPs are unregistered investments sold by unlicensed individuals using sophisticated-looking websites.

The con artists behind HYIPs are experts at using social media — including YouTube, Twitter and Facebook — to lure investors and create the illusion of social consensus that these investments are legitimate, but investors should know that HYIPs are just Internet-based scams.

"HYIPs are old-fashioned Ponzi schemes dressed up for a Web 2.0 world. Some of these schemes encourage people to bring in new victims, while others entice investors to 'ride the Ponzi' by attempting to get in and get out before the scheme collapses," said FINRA Senior Vice President John Gannon.
HYIPs display multiple signs of fraud, including the promise of extraordinarily high returns.

For example, the Genius Fund HYIP at one time promised 36 to 40 percent daily, with two-day yields of 106 percent.

 Many of the con artists behind HYIPs use existing investors to keep their Ponzi schemes growing by paying current investors "referral bonuses" of up to 25 percent for bringing in new recruits.

How Investors Can Protect Themselves
FINRA's publication HYIPs—Hazardous to Your Investment Portfolio outlines in detail the characteristics of HYIPs, the steps investors can take to protect themselves and where investors can turn for help if they think they have been scammed.

Full Alert from FINRA Regarding Internet-Based Ponzi Schemes