Why People are still Investing in Online Scams

Why its very definition, an online scam works by fooling people into thinking that they will earn or win something that they probably never stand a chance of getting. Curiously, however, new research shows that some investors are knowingly choosing to place their funds in online scams, hopeful that if they time things right then they can beat the scammers at their own game.

According to the BBC website, the research examined investment behavior in High Yield Investment Programs, or HYIPs. HYIPs are known as fraudulent investment schemes, because they promise huge returns on investment, often in excess of 100% per year. The organizers offer these enormous yields to attract investors, knowing that they will never see those returns. Otherwise known as Ponzi schemes or prime bank scams, there are several warning signs that a potential investment opportunity is in fact a HYIP. According to Investopedia, you should be looking for excessive guaranteed returns, extreme secrecy, claims of exclusive opportunities and a high degree of complexity about how the scheme works.

For some investors, however, it seems that this advice is being ignored. The research undertaken shows that $6 million a month was passed through the 1600 schemes over a 9-month period. These schemes are, in turn, being monitored by independent aggregator or tracker sites, which closely analyze the performance of Ponzi schemes. These sites exist solely to try and help investors establish when a HYIP is about to collapse, so that they can try and recover their investment. In some cases, the study found that if investors acted quickly enough, they could get their money back, and even see some return.

This situation relies on the nature of a HYIP, whereby early investors benefit from the naivete of people coming into the scheme later. These later investors may be unaware that they are joining such a scheme and that they are less likely to see their money again.

The research, undertaken by computer scientists from the Wellesley College in the US suggested that regulators and governments could take action to address these schemes. These measures could include targeting the firms that provide the digital cash to allow the schemes to operate. The sites offering the trackers could also be targeted as this would stifle the availability of information online, which often attracts new investors. Above all, education is the best way to prevent these schemes taking hold. By ensuring that nobody sees any potential in a HYIP, there really is no way that they can work.