Law Offices of Robert Townsend
Hampshire House
11944 Mayfield,
Voice: (310) 207-0180
Fax: (310) 388-5690
E-mail: bob@townsend.net
Primary Robert Townsend Web Site: http://www.bob.townsend.net/
Do High Yield Investments Programs Exists?
(Also called “Private Securities Trading”)
By
Warning! This is
not intended to be legal advice; it is information and opinion only. Do NOT rely on this information as legal
advice. You must first see your own attorney and apply the facts of your particular
situation to the law of your state and country. Do not engage in any area of
the subject of this article without first seeing an attorney. You may be subject to severe investment
losses, or as a broker to civil and criminal penalties.
These opinions
are based upon the 20+ years of experiences and observations of the author in
33 countries as an attorney to investors, financial institutions, and others
involved in international transactions. He has also served as an expert witness in
this area of the law.
Do High Yield Investment Exist?
High
Yield Investment Programs (HYIP): This is the question that I am
asked everyday. My answer is that they
do NOT exist in the form as presented in the
Confused With “Higher Yield Investments”: However, it is important to initially note
that what I call, “higher yield investments” do exist. Here lies the confusion. These “higher yield investments”
sometimes appear similar in some respects to the non-existent “high
yield investment programs” but they are different.
·
The “higher yield investments” are
usually $10 million to $500 million investments that are not secret, do not
involve the Federal Reserve, and will generally produce significant returns for
an undetermined period.
·
But unlike HYIP’s, they are investments that are
(i) not represented to be wholly without risk and (ii) do not always involve
the sale and purchase of medium terms notes, and (iii) there is no guarantee of
production of profits (though often there are safeguards built in to assist
in protecting principal).
·
Further, they require highly credible investors
with substantial and thoroughly checkable funds (and the broker fees are
not 10-50% of the profits but usually no more than 5%…usually less but
nevertheless a lot of money).
·
There are very few people who have $100 million
(more or less) to invest, so these situations do not arise everyday. I have represented many clients for over 20
years dealing with the many vicissitudes of the non-existent HYIP’s as well as
representing investors in the lawful higher yield investment situations.
·
A cautionary note to
potential Investor Clients: I am contacted by investors almost daily
with hundreds of millions of dollars wanting legal information on
investments. Before anyone calls my
office regarding these type of investments, is it is essential to note that I
will only refer investors to the appropriate parties who are NOT subject in any
manner whatsoever to the jurisdiction of the United States (Patriot Act issues
on repatriation of profits) or an entity, person or country which even
slightly raises a question with regard to money laundering and/or possible
terrorist issues; e.g. Syrian investors (I apologize to the innocent Syrian
investors.). Also, note I do not participate in the profit of such referrals
for legal ethics conflict of interest reasons.
Rule To Follow: As a last note to the uneducated eye, it is sometimes difficult to tell the difference between the fraudulent high yield investment programs and the lawful “higher yield “investment situations, so one should always presume “fraud”. [See Appendix below for government fraud warnings.] I will help investors for no charge to make this distinction, as it only takes a few minutes of my time with my experience to save a person from incurring devastating losses.
What Do High Yield Investment Programs or “HYIP’s Look
Like?
In General. Generally, these investment programs involve the purchase and resale at a profit of Medium Term Notes (MTN’s) which are instruments issued by banks. These transactions are done by a “trader” who purchases the notes at a discount and resells them to a buyer who has agreed to buy prior to the trader’s purchase so there is no risk that the instruments will not be bought and sold at a profit. Thus, there is no risk. Under most programs this process is repeated several times a week for 40 weeks.
Role of Investor. The role of the investor is to provide the funds to the trader, and the trader and the investor will divide the profits in some negotiated ratio. Generally, the investor is introduced to the trader through a broker, and the broker receives a portion of the profits as a commission for this introductory service. Sometimes the trader has another party (called a “Facilitator”) gather the funds delivered through the brokers. In other situations, the funds are delivered to a “Commitment Holder”, of which there are reputed to only be seven in the world. Their function is to provide an annual commitment of funds to the banks and traders.
Role of Federal Reserve. Because U.S. dollars are involved, and the quantity of investment dollars runs in the billions, the United States Federal Reserve System oversees and approves these transactions; in fact, an investor may have to meet with the “Fed” to make the deals happen. The profits produced are extraordinary, commonly in the range of 100% per week. Sometimes, it is required that the profits be invested in a humanitarian project; however, even in these cases the investor is allowed to keep a significant portion of the profits for his own account.
Transaction Procedures. These investments are highly secret and confidential, as very few people are allowed in on these exceptional investment opportunities. Consequently, the investor must sign a “Non-Circumvention/Non-Disclosure Agreement” keeping everything done confidential and secret. Often this Agreement also contains a fee agreement for brokers or a joint venture agreement with the brokers. The transaction is usually begins by the investor signing a Letter of Intent stating that he was not solicited for the investment, and that he intends to invest a certain sum in the investment. Next, the investor must provide the broker a proof of funds (i.e. proof that the investor has the money he intends to invest); this is in the form of either a letter from the investor’s bank signed by two bank officers or a recent bank statement.
Security of Investment Funds. There are two basic types of programs; one where the investor places the funds in his own account (called a “Reserved Funds program”) or where the funds are transferred to the account of a broker, lawyer, Facilitator, Commitment Holder, or trader; but whomever the funds initially go to, ultimately the funds end up under the control of the trader. There are various arrangements to protect these funds so that no one steals them. An agreement must be signed by the investor (or the broker on behalf of the joint venture if he is a joint venture partner of the investor) with the trader setting forth the profit structure. Then the trading begins, and the profits are remitted to the account of the investor. At the end of the 40 weeks, usually the investor’s principal is returned, as well. The investor makes an enormous profit without out any risk.
Problem With Programs. These programs as stated above are entirely bogus and do NOT exist. However, it is important to note that there are legitimate investment situations in the private securities trading area that may appear to have some of the components of the bogus programs. But the legitimate investment situations will never (a) represent the outlandish profits of a HYIP, (b) never represent that it is connected in any manner with the Federal Reserve, and (c) never represent that the investment is wholly “risk free”. Sometimes it is difficult for the uneducated eye to tell the bogus from the legitimate investment situation. The rule to follow is that a prospective investor or a broker to whom such programs are presented must presume that they are bogus unless proven otherwise.
What is the evidence that these programs as stated above do not exist?
Medium Term Notes (MTN’s). These
notes are available from any important brokerage firm, but they are not
available at the deep discounts represented to create the high yields promised
in these programs. There is no logical
business reason for an AA rated bank to sell their notes at a deep discount
when they can sell them at a minimal discount or even at a premium. Further, in general, the distributions of the
original issue of these notes are completed through major investment banking
houses, usually one affiliated with the issuing bank. This is where the supply
of these notes comes from…not through individuals or unknown companies. This
means there is a paucity of product available, if any, for the people that are
doing the inducing of investors to join them in this search for the money
tree. If someone is offering you AA
rated bank instruments at a substantial discount, almost always it is not true
and often a fraud. I have seen
exceptions, but I would suggest that no one rely on the possibility that there
is an exception in their case. Assume
it is not true!
Ownership
of Instruments Misrepresentation. Investors and brokers should both note that
is it is unlawful in the
Federal Reserve Involvement. The United States Federal Reserve is not involved in these transactions other than in assisting in prosecuting those who are fraudulently doing them. Also, there is no such thing as a “Fed number” as represented by some of the “entrepreneurs” doing these deals. As a side note, the World Bank, International Monetary Fund, the United Nations, or any other entity are not involved in these schemes, as well. See Appendix below for Internet warnings of some of these entities.
Bogus
Documents Required. The sole purpose of the
“Non-Circumvention/Non-Disclosure Agreement” is solely and only to protect the
line of brokers involved. (By the way
the “Facilitator” is just another broker with a fancier name he has given
himself.) Also, the Letter of Intent
(LOI) and the Joint Venture Agreement are solely for the protection of the
brokers, and the Joint Venture Agreement is designed to give the broker a share
of profits larger than a commission and often to allow him to control the
money…very bad. In legitimate
transactions these documents are not necessary.
The proof of funds is required to allow the broker to proceed to the
next level (usually another broker), and an investor should note that most
Commitment Holders. There is no such thing as “commitment holders”. This is just part of the mythology of this worldwide sub-culture that deals in high yield investment programs.
“No
Risk” Representations. It
is unlawful in the
Extraordinary Yield Representations. To represent that these programs will earn
extraordinary profits (e.g. 100% a week, a month, etc.) is likewise unlawful
and the basis for many successful prosecutions in the
What
is the liability of brokers in the
Brokers Beware! There is absolutely no way for a broker in
the
Unlawful Agreements. It is also important to note that because the agreements to provide HYIP’s are to provide an unlawful (non-existent) product, the contracts are illegal and unenforceable, including the agreements for compensation to the brokers. So the broker cannot even sue for the commissions that he didn’t earn on the non-existent investment. This is not a smart business in which to engage, civilly or criminally.
Some Advice For Brokers. I am often struck by the sad situation where naïve brokers without any criminal intent whatsoever find themselves suddenly in very serious legal trouble believing in their innocence, because they followed all the precautions they learned from other brokers. So here is some additional advice. Other than to stay away from the HYIP business, there are two good pieces of advice to consider. First, do not keep any copies of instruments anywhere within your apparent control (including your computer), because if you possess a fraudulent document this may be (a) itself a crime and (b) very condemning evidence against you for other related crimes. Second, if you are approached by law enforcement regarding your activities, do not try and explain your way out of the problem. You can’t do it! It is impossible. Say nothing! They do not care to hear about your innocence. They are only there to make a case against you. Whatever you say, will be taken adversely to your interests…no matter how innocent you think you may be. That is their job. Tell them you will speak to them only after you have consulted a lawyer; this is your Constitutional right…use it!
Pooling Investors. If you are a broker and you are involved in any manner (i.e. it’s called “conspiring”) combining the investments of two or more investors into an “investment pool” to invest in a HYIP, then seek immediate legal help with the goal of extracting yourself from this illegal position. You may or may not be successful in such extraction procedure, but it may help you at sentencing time; i.e. the judge will know that you at least tried to unravel your participation in the unlawful transaction. This is an absolute “no-no”. There is legal liability even before you begin paying investors on a Ponzi Scheme. (See Ponzi Schemes in Nutshell” at http://www.townsend-law.netfirms.com/ )
Checking Authenticity of Bank Instruments or Documents. The
ICC states: “Anyone offered an investment opportunity supported by a financial
instrument can have it checked out by the CCB for a
nominal cost. Call +44(0) 208 591 3000 or e-mail ccb@icc-ccs.org.uk for details.” Big warning! What one (other than a very careful and
knowledgeable attorney) must NOT due is to walk into a bank (including branch
offices) with a bank issued instrument or letter to check on its
authenticity. There is a high
probability (a) the instrument or letter is fraudulent, and (b) therefore one
will be arrested “on the spot”, and that probability substantially increases
if one is a minority; e.g. African-American, Hispanic, from the Mid-East,
etc. It is also important to note that
you not tell any authenticating bank that you would like to borrow against the
instrument if the instrument is authentic, as they will consider this part of
perpetrating a fraud on them. You can be in such trouble so quickly that you
won’t know what hit you until you are bailed out of jail…if you have the money
to pay bail.
What
about lawyers' trust accounts and high yield investment program transactions?
·
This is advice for both investors and
lawyers. Often the investors
funds will be placed in a law firm’s trust account as one step in a high yield
investment program transaction. This tact is to give the investor comfort and
confidence. For investors, this should
never be allowed, because the lawyers do not understand these transactions any
more than the investors and most of the brokers, and
the lawyers will be “conned” out of the investors’ money. This happens over and
over again. This is true regardless of
how large or prestigious the law firm may be.
The lawyer, obviously, will be civilly liable for the investor’s funds,
but he will also be a co-conspirator under criminal statutes.
·
Also, it is important to note,
that there are many cases where the lawyers are the fraudsters behind the
scheme; so be aware of lawyers offering HYIP’s.
As to being able to collect against lawyer’s malpractice insurance
coverage, this is problematic as most policies have exclusions for “business
transactions” and for business fraud.
Upon conviction of the lawyer, in some states the investor can collect
against the State bar client security fund, but these recoveries are severely
limited; e.g. $50,000.
·
Special Warning To Lawyers. Lawyers get indicted as co-conspirators for
doing very little with regard to these scams.
For instance, one attorney that knew nothing about the scam nature of
his client’s business was paid $15,000 to form an offshore company. The attorney’ sole involvement was to
form the offshore company by hiring a local
What about high yield investment programs and “Ponzi
Schemes”?
HYIP’s are the part and parcel of
high yield investment programs. If you
wish to learn more about “Ponzi Schemes” see “Ponzi Schemes In a Nutshell” at http://www.townsend-law.netfirms.com/.
Related Scams Using Bank Guarantees and Standby
Letters of Credit.
For information on Bank Guarantees, see http://townsend-law.netfirms.com/bankguarantees.htm. For information on Standby Letters of Credit see http://townsend-law.netfirms.com/slc.htm
Advice on High Yield Investment Programs or
investments that appear to be HYIP’s.
If you have
any questions about high yield investment programs or investment opportunities
that you believe may not be such programs (e.g. lawful higher yield
investments), for a complimentary discussion
please call the Law Offices of Robert Townsend.
Such a free discussion may save you a great deal of money if you are an
investor, and if you are a broker, it may save you from something worse. Also, if you want additional information on
HYIP investments, see Robert Townsend’s educational site on the subject at Article on HYIP .
Here, the author has written additional comments over the years on the
subject.
Contacts:
Law Offices of Robert Townsend
Hampshire House
11944 Mayfield,
Voice (310)
207-0180
E-mail :bob@townsend.net
Main Web Site: http://www.bob.townsend.net/
It is important to note that one should presume that an investment opportunity that appears to be a “high yield investment program” is a fraud. However, in order to protect the public the government warnings below, and many comments on the Internet message boards, often are overly broad and may be unintentionally misleading as to the availability of legitimate investments.
www.iccwbo.org/home/news_...t_scam.asp
www.sec.gov/divisions/enf...bank.shtml
www.federalreserve.gov/bo...960717.htm
www.ny.frb.org/bankinfo/c...10858.htm
l
www.imf.org/external/np/s...nb9614.htm