North American Securities Administrators Association Publishes Warning On HYIP Frauds: ‘Ponzi Schemes Sold By Unlicensed Individuals,’ International Group Says

Don’t get fleeced by HYIP scammers and commission-based promoters who push such fraud schemes on the Internet, the North American Securities Administrators Association (NASAA) says in a new warning.

From the warning (italics added):

Have you ever seen an ad on the Internet or a posting on a social media site promising too-good-to-be-true rates of return in short periods of time? Then you may have encountered an advertisement for a high-yield investment program, sometimes referred to as an HYIP.

HYIPs are Ponzi schemes sold by unlicensed individuals. In the past, con artists relied on word of mouth to lure investors into these investments. Now they rely on the Internet and social media buzz to quickly popularize their schemes before the fraud is discovered.

recommendedreading1NASAA’s membership consists of “67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico,” the group says.

The association’s member-agencies were instrumental last year in making sure the word got out about the “Profitable Sunrise” scheme that traded on social media and used Bible verse as a lure. Some individual NASAA member-agencies filed actions against Profitable Sunrise, as did the U.S. Securities and Exchange Commission.

Both the Financial Industry Regulatory Authority and the U.S. Securities and Exchange Commission have published warnings on HYIP scams similar to this month’s warning by NASAA.

On Nov. 12, 2014, the SEC charged an HYIP known as “Profits Paradise” that allegedly was operating from India while duping people into believing it was operating from the United States.

The first Profits Paradise “plan purportedly yielded daily interest of 1.5 percent on investments of $10 to $749,” the SEC said. “The second plan purportedly yielded 1.75 percent on investments of $750 to $3,499. And the third plan purportedly yielded 2 percent on investments of $3,500 and above. Postings on Profit Paradise’s Facebook page promised investors they could ‘Enjoy Hassle Free Income’ and advertised a ‘5% Referral Commission.'”

NASAA’s HYIP warning notes that some HYIP scammers are switching to cryptocurrencies. With many HYIPs already operating in an environment of secrecy, ones that use payment vessels such as Bitcoin may intensify risk to investors.

From an April 2014 NASAA warning on risks associated with virtual currencies (italics added):

Some common concerns and issues you should consider before investing in any product containing virtual currency include:

  • Virtual currency is subject to minimal regulation,susceptible to cyber-attacks and there may be no recourse should the virtual currency disappear.
  • Virtual currency accounts are not insured by the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits up to $250,000.
  • Investments tied to virtual currency may be unsuitable for most investors due to their volatility.
  • Investors in virtual currency will be highly reliant upon unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions.
  • Investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties, to protect their e-Wallets from theft.

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