Investments that are too good to be true

Barbara Marquand | guest writer for GoTalkMoney

Claims of high-yield investment programs touted on websites and social media like Twitter and Facebook understandably get your attention, particularly in light of stock market volatility and today's low interest rates on CDs, money market accounts and savings accounts.

After all, who wouldn't want to earn a 20 or 30 percent return in as little as a day?

Sound unbelievable? It is, but a surprising number of people fall for the sales pitch.

Federal authorities recently charged Nicholas A. Smirnov of the Philippines with 10 fraud-related counts for allegedly running an international Ponzi scheme through a website called Pathway to Prosperity, which promised investors annual returns of 500 percent and more but made very few investments. The scheme resulted in losses of $70 million by 40,000 people in 120 countries, including the United States, according to the U.S. Department of Justice.

The Financial Industry Regulatory Authority Inc. recently released an investor alert warning consumers against these schemes.

Beware of unregistered investments

High-yield investment programs are unregistered investments created and touted by people who aren't licensed to sell securities. They promise high returns through vague trading strategies, FINRA says, and many are Ponzi schemes.

The number of new federal investigations into these programs ballooned 105 percent in fiscal year 2009 over fiscal year 2008, the Federal Bureau of Investigation recently reported.

Operators use websites and social media to promote the programs and create a buzz. Some sites create forums for trading tips or even caution investors against high-yield investment programs to appear as if theirs was not in the same category.

"But the reality is virtually every HYIP we have seen bears hallmarks of fraud," FINRA said in its alert.

FINRA describes HYIP sites as a "bizarre substratum of the Internet" where sites rank the latest programs, blog and chat about how to win at HYIPs and rely on online payment systems, some of which have been tied to crimes like identity theft.

Protecting your investments

Here are tips from FINRA about how to spot scams and protect yourself:

• High, unsustainable yields and unclear investing strategy

These programs promise incredible returns but give little clue as to the operation will get them for you. Be skeptical, and remember rankings and testimonials can be faked.

• Little information about the program operator

Don't invest in anything that doesn't spell out who invests the money, where the program is headquartered and who and where you call to get information. Off-shore operations raise a red flag, too. Sites outside the United States are usually not licensed to sell securities anywhere, especially here. Verify who you're dealing with and make sure they're licensed to do business with you, FINRA advises.

• Use of e-currency sites

Although there is no federal regulation of e-currency sites, many states require them to register with a banking regulator. An unlicensed e-currency site is a bad sign.

• Incentives to recruit others

Beware of programs that offer big rewards for getting others to come on board.

Finally, if you've already invested in a high-yield investment program, don't send more money, try to get in and out before the house of cards falls or refer other investors to make bonuses.

Low bank rates, and the general sluggishness of the economy are frustrating for savers, but you're better off investing in a certificate of deposit or money market account than throwing your money away on scoundrels. Get the best interest rates you can by comparing CDs, money market and savings accounts online.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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