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High Yield Investment Programs
April 26, 2006 2:38 PM   Subscribe

In the murky world of HYIP (high-yield investment programs), on the wrong side of the Internet tracks, Team Aaron and Shara were very well known. They had tens of thousands of fans, eager to know which programs were still paying 1-2% per day (or more!). Now their fans will have to resort to other sites to see who is still paying. Curiously, these programs only seem to take anonymous, non-disputable forms of e-payment, such as e-gold. Now, all that is left of them is their farewell website. Did they retire on all of the referral fees, as some suspect? It is impressive that such effort is dedicated to this snake oil, but the law of large numbers must make it work. Who can resist 1.5% an hour return on investment? Is this what has become of anonymous micropayments?
posted by Adamchik (19 comments total)

 
Someone needs to make a firefox extension that just flashes the words 'Ponzi Scheme' in big garish bold letters whenever someone clicks a page like the ones listed above.
posted by PenDevil at 3:07 PM on April 26, 2006


Well, some people do make money in Ponzi Schemes, and not just the Ponzi.

Most people don't, but most people don't make money with the lottery either.

I do have a friend who made thousands of dollars on stockgeneration way back in the day.
posted by delmoi at 4:02 PM on April 26, 2006


Making money on a Ponzi scheme (if you are aware of its nature) is at very least unethical and quite likely felonious too.
posted by lupus_yonderboy at 4:06 PM on April 26, 2006


Actually I had an idea the other day for a way to 'gamble' on the stock market that would operate at the same speed as regular gambling but would (in theory) have a positive expectation.

It works like this: You bet X dollars, and the brokerage invests X*A dollars in some stock (your $X plus their $(X*(A-1)). If the stock goes below X*(A-1), then the brokerage sells and keeps all the money, and you lose $X.

On the other hand if the price of the stock goes up, you get to keep *everything* save the original X*(A-1) that the brokerage put in.

In a concrete example you invest $10 and select 10 as your amplification factor. So the brokerage would invest $100, $90 of it's own money. If the investment drops to $90, they'd sell and you'd get zero. However, if the stock goes up by just 5%, the total investment value would be $105. When you sold, the brokerage would take their $90 back, and give you $15. A 50% increase in just however long it took for the stock to go up 5% (which could happen during the day).

Unlike casino gambling, which have a negative expectation, the average investor would make money at the same rate as they would if they'd simply invested in an index fund, but they'll have more fun this way. (Well, not counting brokerage fees)
posted by delmoi at 4:14 PM on April 26, 2006


Making money on a Ponzi scheme (if you are aware of its nature) is at very least unethical and quite likely felonious too.

I don't see how it's any different then making money in any other gambling system...
posted by delmoi at 4:15 PM on April 26, 2006


delmoi, isn't that basically what a margin account is all about? The bank loans you cash 'on margin' so you can make a bigger investment, and if it goes under, the bank keeps the money.

Actually, that's exactly the model that a lot of the new currency trading services use. You aren't trading against the market; you're trading against the company you signed up with, and they hedge against losing more money than your money.
posted by lowlife at 4:28 PM on April 26, 2006


delmoi, isn't that basically what a margin account is all about? The bank loans you cash 'on margin' so you can make a bigger investment, and if it goes under, the bank keeps the money.

The diffrence is, with a margin account, if the stock loses more value you end up in debit. At least I thought you did...
posted by delmoi at 4:39 PM on April 26, 2006


In a concrete example you invest $10 and select 10 as your amplification factor.

delmoi, I do that all the time. It's called "leverage". You can quite easily get better than 10 to 1 on the futures markets, just as you describe. Yes, it's great fun, and at the very least it's considerably less stupid than Ponzi schemes.
posted by sfenders at 4:41 PM on April 26, 2006


Although it's possible you could end up with a negative account balance if for some reason the broker can't liquidate your position quickly enough, they'll typically do so well before you end up in debt.
posted by sfenders at 4:46 PM on April 26, 2006


Okay, I admit I'm a bit confused by this link. They make references to "purchases", and divide outgoing(?) money into withdrawn and "spent". Wikipedia hasn't provided me any insight here. Have the crossed over with the MLM crowd and are requiring you to by crap products to be in the game?

Also, delmoi: call options provide an instrument close to what you're looking for. You spend your money up front to buy the option, and the only two possibilities are that a) the stock goes up, and you make money and b) it doesn't go up, and you lose your initial investment but no more.

The major difference is that call options eventually expire. You can pretty much pick your poison: take the margin loan and pay interest on it, or do a call option and risk the option expiring before it goes up.
posted by tkolar at 4:56 PM on April 26, 2006


delmoi: A Ponzi scheme is nothing like gambling, unless you cheat when you gamble.

It's sold as an investment, not as a gambling system.

And there's no element of randomness. The early investors make obscene profits; the later investors lose everything.

There's a good reason why Ponzi schemes are considered felonies.
posted by lupus_yonderboy at 5:14 PM on April 26, 2006


Never mind, I think I figured it out. "Spend" is their word for "Investment".

lupus_yonderboy: I believe delmoi is conflating "Ponzi scheme" and "pyramid scheme". Pyramid schemes are can simply be gambling if everyone involved knows what they're getting into.

A "Ponzi scheme", however, is outright fraud.
posted by tkolar at 5:30 PM on April 26, 2006


Is the IP address field to make the "winners" look more real or something? Or just give the script kiddies some targets for extortion?
posted by jduckles at 5:49 PM on April 26, 2006


I don't see how it's any different then making money in any other gambling system... - delmoi

Yeah but gambling is illegal if the government isn't making any money on it.
posted by raedyn at 6:15 PM on April 26, 2006


I had no idea there were so many of these things operating. I imagine most people getting involved must have some idea of what they're getting into. They must, as usual, just be thinking that so many other people are doing the same thing that it will be safe.

If these things go entirely unregulated (as it certainly appears that they are), I can imagine that their lifespans will gradually get shorter and their numbers greater as the most enthusiastic "players" seek out the newest ones, knowing that they won't last long. Soon we'll have ten thousand big internet pyramid schemes running at a time, with each lasting only days or hours, and promising 20% return per minute. The trend will continue until they start dying out too quickly for anyone to make a profit. Maybe that's possible, because unlike most historical examples of Ponzi schemes, so many of the people putting money in know exactly how these things work. It's hard not to notice that several of the ones listed have stopped paying out, and it's no great leap from there to realize that all of them will do the same eventually. Still, some people are willing to take the chance, and the internet is a great way to find them. So I expect it won't do much damage compared to the various other kinds of financial insanity going on in the world today.

I bet there aren't many people from Albania getting involved.
posted by sfenders at 6:51 PM on April 26, 2006


I have a cousin who makes her money from autosurfing. She's intelligent and knows it's dubious, but it suppliments her husband's income so that she can stay at home with their child. For her, the ends seem to justify the means.
posted by arielmeadow at 7:33 PM on April 26, 2006


lupus_yonderboy: I believe delmoi is conflating "Ponzi scheme" and "pyramid scheme". Pyramid schemes are can simply be gambling if everyone involved knows what they're getting into.

A "Ponzi scheme", however, is outright fraud.


I don't understand the distinction — can you elaborate? Subsequent investors' money is used to pay off earlier investors, until the new investment dries up, in both cases, right? Do you mean that a Ponzi scheme is fraudulent because it claims to be using some other mechanism than fresh investment to generate returns (i.e., Ponzi and his International Reply Coupons story) or is there a subtler difference I'm missing?
posted by IshmaelGraves at 8:02 PM on April 26, 2006


IshmaelGraves writes...
Do you mean that a Ponzi scheme is fraudulent because it claims to be using some other mechanism than fresh investment to generate returns (i.e., Ponzi and his International Reply Coupons story) or is there a subtler difference I'm missing?

Nope, that's exactly the difference as I understand it. Pyramid schemes may or may not be fraudulent depending on how they are presented, but a Ponzi scheme specifically involves claiming that the money is coming from somewhere other than where it is.

The stockgeneration scheme that delmoi mentioned was a pyramid scheme where pretty much everyone knew the score going in. There was no mystery behind-the-scenes investment that was going to produce income, it was simply going to be fueled by new investors brought in by "the exponential expansion of the Internet".

Such schemes are illegal in the United States, but I agree with delmoi that they are the moral equivalent of gambling -- as long as everybody knows exactly where the new money is coming from.

This is my first introduction to the world of HYIPs, but after a brief look around it seems to me that there is a lot of purposeful obfuscation going on, as well as a lot of emphasis on money changing hands with no accounting. Not talking about the source of the "free" money seems to be an industry standard. If my scam-o-meter went to 11, this stuff would still peg it.
posted by tkolar at 8:49 PM on April 26, 2006


I have a cousin who makes her money from autosurfing. She's intelligent and knows it's dubious, but it suppliments her husband's income so that she can stay at home with their child. For her, the ends seem to justify the means.

Your cousin obviously hasn't heard of 12DailyPro and the SEC, then. (disclaimer: I'm a long-time member of the linked site, so this is somewhat of a self-link)
posted by thanotopsis at 4:17 AM on April 27, 2006


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