What Is a High-Yield Investment Program (HYIP)?

A high-yield investment program (HYIP) is a fraudulent investment scheme that purports to deliver extraordinarily high returns on investment.

HYIPs often advertise yields of more than 100% per year in order to lure in victims and regularly use new investors' money to pay off older investors. They are not to be confused with a legitimate high-yield bond investment, which offers higher than investment-grade interest rates.

Key Takeaways

  • A high-yield investment program (HYIP) is a fraudulent investment scheme that purports to deliver extraordinarily high returns, in excess of 100%, on investment.
  • Most HYIPs are Ponzi schemes where the organizers take money from new investors to pay returns to established investors. 
  • HYIPs, often known as "prime bank scams," typically involve the alleged trading or issuance of “prime” bank financial instruments and may include references to prime European or prime world bank instruments.
  • Warning signs of a HYIP include excessive guaranteed returns, fictitious financial instruments, extreme secrecy, claims that the investments are an exclusive opportunity, and inordinate complexity surrounding the investments.

Understanding a High-Yield Investment Program (HYIP)

HYIPs are Ponzi schemes, and the organizers aim to steal the money invested. In a Ponzi scheme, money from new investors is taken to pay returns to established investors. Money is not invested and no actual underlying returns are earned; new money is just used to pay people who entered the scam earlier than they did.

Though this brand of Ponzi scheme has existed since the early 20th century, the proliferation of digital communications technology has made it much easier for con artists to operate such scams. Usually, an operator will create a website to lure in unsuspecting investors, promising very high returns but remaining vague about the underlying management of the investment fund, how the money is to be invested, or where the fund is located.

These funds typically involve the alleged trading or issuance of “prime” bank financial instruments and may include references to prime European or prime world bank instruments. For this reason, this scam is also known as the "prime bank scam."

HYIP operators will typically use social media, including Facebook, Twitter, or YouTube, to appeal to victims and create the illusion of social consensus surrounding the legitimacy of these programs.

How to Spot a HYIP

The Securities and Exchange Commission (SEC) advises that there are several warning signs that investors can use to help avoid being victimized by HYIP scams. These include excessive guaranteed returns, fictitious financial instruments, extreme secrecy, claims that the investments are an exclusive opportunity, and inordinate complexity surrounding the investments.

Perpetrators of HYIPs use secrecy and a lack of transaction transparency to hide the fact that there are no legitimate underlying investments. The best weapon against getting sucked into a HYIP is to ask a lot of questions and use common sense. If an investment’s return sounds too good to be true, it probably is.

High-Yield Investment Program (HYIP) Example

An example of an HYIP was ZeekRewards, run by Paul Burks and shut down by the SEC in August 2012.

ZeekRewards offered investors the opportunity to share in the profits of a penny auction website, Zeekler, at returns of 125%. Investors were encouraged to let their returns compound and to increase their returns by recruiting new members. Investors were required to pay a monthly subscription fee of $10 to $99 and make an initial investment of up to $10,000.

The SEC found that about 98% of the funds disbursed were paid out of the pockets of new investors and that ZeekRewards was a $900 million Ponzi scheme. Burks was fined $244 million and sentenced to 176 months in prison.