HYIP and Autosurfing - Modern Ponzi Investment Schemes
2 September 2006Many people who are just getting into investing for retirement will do generic searches on the Internet trying to find information on investing, educational sites, or different business opportunities. While there’s a lot of good stuff out there, there’s also a lot of people interested only in taking money from you. And they aren’t just Nigerian oil ministers who happen to need an American’s bank account information and are willing to give you a cut of the $30 million they want to smuggle out of the country.
No, many of the modern scams are masquerading as investment opportunities that look legitimate to the uninformed. In fact, far from being something new, a lot of them are just variations of an old and clever scam: the Ponzi scheme. This scam gets its name from a guy named Charles Ponzi who stole about $15 million from various people over short periods in Boston in the 1920’s. How did he convince people to give him $15 million dollars? He promised them that he’d double their money in 90 days - and he did. For the first people that invested, that is. What he was doing was taking money from a small group of people, promising to “invest” it, and then getting more people to invest for the next 90 days. He then used their money to pay off the first people, who doubled their money - and then wanted to “invest” a bunch more, along with all their friends. The Ponzi scheme gains credibility because for awhile, it actually does give people huge returns. But once a certain amount of money gets into the system, the person running the scheme disappears - taking all the money “invested” at that time with them.
So of course no one would fall for this today? Sadly, these schemes are thriving. And the two largest variations are called High Yield Investment Programs (HYIP’s) and Autosurfing. A HYIP is generally based on the claim that there is some sort of investment opportunity generally unknown to the public that the program will let you in on for huge returns. Many of them claim that there is a “secret banking system” where the program will place your money in a bank account and be able to trade it, for free, with no risk. Most of them use complicated sounding language, referring to obscure aspects of the banking system - they may claim to deal in letters of credit or various kinds of banking notes. The FBI has issued a warning stating that these schemes are illegal and that there is no secret banking system which people can use to make sudden profits.
Autosurfing is something slightly different, but it is plainly an illegal scam, and the government is cracking down on these companies. The schemes work by pretending that they are a legitimate advertising company. You can read a breakdown of the tricks used by one company here, but in essence they claim that if you put up a certain amount of money, they will put a program into your Internet browser allowing you to view ads while surfing the Internet. They claim to give you a cut of the advertising revenue, but you have to “invest” to be allowed to join, and you get a “return” only so long as you surf the Internet for a certain amount of time each day. This has at least a veneer of legitimacy - in the Dot Com boom days, there were a few companies that tried to use this as a business model. They went bankrupt because it doesn’t work - paying people to pretend to look at ads isn’t very lucrative for advertisers. But the failed business has become a successful scam because it sounds like something that COULD be true.
So how do you protect yourself from these kinds of scams? First of all, in looking around, I noticed that most people running the schemes aren’t even trying to hide what they are. Most even call themselves a HYIP or an autosurfing program - which makes it more than a little disturbing that people still put money into them. For the ones that try to hide it, I found a good list of tips on avoiding these things here. You shouldn’t really need them - if someone over the Internet offers to give you a huge return for only a small investment, they are scamming you. You shouldn’t be sitting around trying to figure out whether it could be real or not. Once you’ve gotten to that point, you’re a sucker who’s taken the bait. My single rule of thumb for whether an “investment” is a scam or not is this:
Can you call up a broker at Merrill Lynch, Fidelity, E-Trade, or some other famous investment broker and invest in it?
If you can’t, it’s definitely a scam. People who have real investments that are able to make real money will do one of two things: if they can, they’ll get it listed on some sort of exchange, in which case you can trade it using a reputable investment house. If they can’t, they’ll get money from friends and people they know personally - in which case you wouldn’t be hearing about it third-hand from some web site that wants you to invest $200. That rule won’t guarantee you you’re not going to lose money - many penny stocks are garbage companies that you could trade through Merrill Lynch and find out it was a sucker’s bet anyway. But it is NEVER a good idea to “invest” money on some web site you’ve never heard of before.
Discuss this on the Free the Drones Financial Forums.
2 Responses to “HYIP and Autosurfing - Modern Ponzi Investment Schemes”
September 5th, 2006 at 10:27 am
[...] It seems that the Nigerians aren’t the only ones getting in on the scam business these days. Free the Drones tells us about some Modern Ponzi Investment Schemes: HYIP and Autosurfing. Sox First tells us about how Spam pumps and dumps penny dreadfuls. I think hosting this carnival would have been worth it just to read that post as I have been wondering why I keep getting spammed about penny stocks these days. [...]
October 18th, 2006 at 3:14 am
A very well-written article, you can also find more about hyip in Wikipedia, search for the keyword ‘hyip’