"The Postmodern Ponzi Scheme: Empirical Analysis of High-Yield Investment Programs", Moore 2012; though $6m a month in revenue, not losses, worldwide, is pretty trivial, especially if the users are 'postmodern' and may be viewing it largely as a form of gambling. It's the offline ponzis which do the real damage.
Excerpts:
"A High Yield Investment Program (HYIP) is an online Ponzi scheme, a financial fraud that pays outrageous levels of interest using money from new investors. We call this fraud 'postmodern' in that sophisticated investors understand the fraud, but hope to profit by joining early. These investors support 'aggregators' - reputation websites that track the status of HYIPs. We examine 9 months of aggregator data and show that there is no evidence of collusion between different aggregators. We use their data to assess HYIP time to collapse, finding - perhaps unsurprisingly - that longer lifetimes are associated with lower interest payments and longer mandatory investment terms. We look at the role of digital currencies in supporting HYIPs, finding that a handful of systems dominate. Finally, we estimate that this type of criminality is turning over at least $6 million/month and set out ways in which it might be disrupted.
An extensive online ecosystem has developed in support of HYIPs, involving discussion websites, digital currencies, and third-party 'aggregator' websites that track HYIP performance. These aggregators list dozens of active HYIPs, tracking core features such as interest rates, minimum investment terms and funding options. They operate forums in which individuals can report their experiences; but more significantly, the aggregators appear to make their own investments in some of the HYIPs and report on when interest payments cease.
we identified 9 aggregator websites to monitor...Between November 17, 2010 and August 21, 2011 we made daily visits to each aggregator website (with the exception of four days in November and December 2010 due to a bug in our crawler). We parsed the pages we fetched to extract the key characteristics of the HYIPs they listed: interest rate, investment term(s), user and aggregator ratings, along with payment status (i.e., paying, not paying). The names aggregators use for each of these fields varied slightly, so we manually unified the terminology and stored each observation in a database. A total of 141 014 observations were made.
In every case we do not compound daily on the current value, but compound on the original principal. In other words, we do not assume that any of the interest that is paid out will be reinvested. We take this approach because it is consistent with the returns on investment (ROI) reported by the vast majority of aggregators. Additionally, if HYIP investors are indeed 'postmodern' and know to take profits as rapidly as possible, then their strategy will be to be avoid keeping money in any single scheme for too long.
In particular, 595 of the 1 576 HYIPs (38%) are tracked by at least two aggregators and so we can compare the reports about the same HYIP across different aggregators. If there is rough consensus then, either the aggregation sites are in a universal conspiracy, or they are independently assessing the HYIPs in a truthful manner...The first row of this table reports the fraction of HYIPs where all aggregator reports are in perfect agreement. As can be seen, for 40% of HYIPs, the maximum allowed investment values are in agreement, while 87% of the time the minimum investment value is reported to be the same by different aggregators.
Figure 2 (left) plots the Cumulative Distribution Function (CDF) of the standard deviations of the reported starting and ending times of HYIPs across aggregators. For around 80% of HYIPs, the standard deviation is very small, at most a few days. However, for the remaining 20% of HYIPs, there is substantial disagreement between aggregators...Aggregators keep track of their own investments in HYIPs, reporting each day the cumulative return on investment (ROI). Often, the ROI will 'flat-line' - suddenly stop changing - a few days before the aggregator stops tracking the program, because the HYIP is no longer paying out. Hence, we can view the time when the ROI stops changing as an alternative indicator of collapse.
The survival function data shows us that the while the median lifetime of HYIPs is just 28 days, one in four will last more than three months, and one in ten for more than ten months. That is, although many HYIPs collapse almost immediately, a substantial minority persist for a very long time. ...Figure 3 examines how the generosity of the HYIP investment terms affects the observed lifetimes. On the left, box plots for HYIP lifetimes are given that span different profit rates. When an HYIP offers a less generous profit rate (less than a few percent daily), there is a greater chance that the HYIP will survive for longer. Once the profit rates become more outlandish (such as the half of HYIPs offering more than 10% daily returns), HYIP lifetimes are more consistently short. We conclude that the offering of higher rates of return does not bring in sufficient investment to offset the cost of servicing existing commitments. Another factor is the minimum investment period required by the HYIP. Figure 3 (right) plots HYIP lifetimes sorted by investment term. As expected, HYIPs that require longer investment terms tend to be more stable. However, we note that there is still substantial variation in lifetime even for less generous interest rates and longer investment terms. Evidently, some HYIPs cannot attract enough investment to sustain even these more modest programs.
We found that 22 currencies were accepted for use at the HYIPs we tracked. Most of these were only offered by a handful of HYIPs (including 14 HYIPs that took PayPal, 7 Moneybookers and 1 Western Union). We list the six most common currencies below and note that the most common, by far, were Liberty Reserve and Perfect Money, accepted by 83% and 70% of HYIPs, respectively. Both currencies are based in Central America.
1. Liberty Reserve
2. Perfect Money
3. AlertPay
4. SolidTrustPay
5. Pecunix
6. GlobalDigitalPay
Liberty Reserve has a warning on its website advising against investing in HYIPs, noting that payments are 'non-revocable' and that they cannot be held liable for fraudulent activities by its users. Such admonishments raise the question: how much of these currencies' profits come from HYIP activity? We attempt to shed light on this by examining the backlinks from other websites into the currency websites. We used Yahoo Site Explorer 3 to gather 1 000 backlinks for each of the most common currencies and calculated what proportion of the incoming links came from HYIP-related websites. The results are listed in the right-most column of the table. 72% of the backlinks to Perfect Money are from HYIP-related websites, as are 33% of the backlinks to LibertyReserve. This leads us to conclude that a substantial proportion of the revenue to these currencies comes from HYIPs. Note that for AlertPay, the third-most popular currency, only 10% of the incoming links are from HYIPs.
It is difficult to directly measure how many people and how much money are invested in HYIPs. However, we can use some publicly available proxies to derive an order-of-magnitude estimate of HYIP impact. As part of its Adwords program, Google offers a Keyword Tool that returns similar search phrases to those given as input. 4 We entered the phrases "hyip" and "high yield investment program", and were returned 100 closely related phrases. Google also offers a related service called Traffic Estimator that estimates for any phrase the number of global monthly searches. We plugged all 102 HYIP-related phrases into the tool to arrive at an estimate of 441 000 monthly searches for these terms on Google...Researchers investigating spam-advertised pharmaceuticals found that 0.5% of site visitors added items to their shopping carts [5], while in an earlier study they found an approximately 8% conversion rate for non-pharmaceutical goods [6]. Leontiadis et al. estimated that between 0.3% and 3% of people looking for drugs via web search ultimately purchased the goods from illicit retailers [7]. While the investment rate for HYIPs could undoubtedly differ from that for pharmaceuticals, these data points do suggest that a 1% conversion rate for HYIPs is plausible. From observation of the statistical information that some sites provide, we will guess that the average investment is $1 000. Plugging these numbers into the above formula we estimate that HYIPs attract at least $6 million per month in revenue.
Google's data shows that that 85% of HYIP-related searches are made from outside the US"
Excerpts:
"A High Yield Investment Program (HYIP) is an online Ponzi scheme, a financial fraud that pays outrageous levels of interest using money from new investors. We call this fraud 'postmodern' in that sophisticated investors understand the fraud, but hope to profit by joining early. These investors support 'aggregators' - reputation websites that track the status of HYIPs. We examine 9 months of aggregator data and show that there is no evidence of collusion between different aggregators. We use their data to assess HYIP time to collapse, finding - perhaps unsurprisingly - that longer lifetimes are associated with lower interest payments and longer mandatory investment terms. We look at the role of digital currencies in supporting HYIPs, finding that a handful of systems dominate. Finally, we estimate that this type of criminality is turning over at least $6 million/month and set out ways in which it might be disrupted.
An extensive online ecosystem has developed in support of HYIPs, involving discussion websites, digital currencies, and third-party 'aggregator' websites that track HYIP performance. These aggregators list dozens of active HYIPs, tracking core features such as interest rates, minimum investment terms and funding options. They operate forums in which individuals can report their experiences; but more significantly, the aggregators appear to make their own investments in some of the HYIPs and report on when interest payments cease.
we identified 9 aggregator websites to monitor...Between November 17, 2010 and August 21, 2011 we made daily visits to each aggregator website (with the exception of four days in November and December 2010 due to a bug in our crawler). We parsed the pages we fetched to extract the key characteristics of the HYIPs they listed: interest rate, investment term(s), user and aggregator ratings, along with payment status (i.e., paying, not paying). The names aggregators use for each of these fields varied slightly, so we manually unified the terminology and stored each observation in a database. A total of 141 014 observations were made.
In every case we do not compound daily on the current value, but compound on the original principal. In other words, we do not assume that any of the interest that is paid out will be reinvested. We take this approach because it is consistent with the returns on investment (ROI) reported by the vast majority of aggregators. Additionally, if HYIP investors are indeed 'postmodern' and know to take profits as rapidly as possible, then their strategy will be to be avoid keeping money in any single scheme for too long.
In particular, 595 of the 1 576 HYIPs (38%) are tracked by at least two aggregators and so we can compare the reports about the same HYIP across different aggregators. If there is rough consensus then, either the aggregation sites are in a universal conspiracy, or they are independently assessing the HYIPs in a truthful manner...The first row of this table reports the fraction of HYIPs where all aggregator reports are in perfect agreement. As can be seen, for 40% of HYIPs, the maximum allowed investment values are in agreement, while 87% of the time the minimum investment value is reported to be the same by different aggregators.
Figure 2 (left) plots the Cumulative Distribution Function (CDF) of the standard deviations of the reported starting and ending times of HYIPs across aggregators. For around 80% of HYIPs, the standard deviation is very small, at most a few days. However, for the remaining 20% of HYIPs, there is substantial disagreement between aggregators...Aggregators keep track of their own investments in HYIPs, reporting each day the cumulative return on investment (ROI). Often, the ROI will 'flat-line' - suddenly stop changing - a few days before the aggregator stops tracking the program, because the HYIP is no longer paying out. Hence, we can view the time when the ROI stops changing as an alternative indicator of collapse.
The survival function data shows us that the while the median lifetime of HYIPs is just 28 days, one in four will last more than three months, and one in ten for more than ten months. That is, although many HYIPs collapse almost immediately, a substantial minority persist for a very long time. ...Figure 3 examines how the generosity of the HYIP investment terms affects the observed lifetimes. On the left, box plots for HYIP lifetimes are given that span different profit rates. When an HYIP offers a less generous profit rate (less than a few percent daily), there is a greater chance that the HYIP will survive for longer. Once the profit rates become more outlandish (such as the half of HYIPs offering more than 10% daily returns), HYIP lifetimes are more consistently short. We conclude that the offering of higher rates of return does not bring in sufficient investment to offset the cost of servicing existing commitments. Another factor is the minimum investment period required by the HYIP. Figure 3 (right) plots HYIP lifetimes sorted by investment term. As expected, HYIPs that require longer investment terms tend to be more stable. However, we note that there is still substantial variation in lifetime even for less generous interest rates and longer investment terms. Evidently, some HYIPs cannot attract enough investment to sustain even these more modest programs.
We found that 22 currencies were accepted for use at the HYIPs we tracked. Most of these were only offered by a handful of HYIPs (including 14 HYIPs that took PayPal, 7 Moneybookers and 1 Western Union). We list the six most common currencies below and note that the most common, by far, were Liberty Reserve and Perfect Money, accepted by 83% and 70% of HYIPs, respectively. Both currencies are based in Central America.
1. Liberty Reserve
2. Perfect Money
3. AlertPay
4. SolidTrustPay
5. Pecunix
6. GlobalDigitalPay
Liberty Reserve has a warning on its website advising against investing in HYIPs, noting that payments are 'non-revocable' and that they cannot be held liable for fraudulent activities by its users. Such admonishments raise the question: how much of these currencies' profits come from HYIP activity? We attempt to shed light on this by examining the backlinks from other websites into the currency websites. We used Yahoo Site Explorer 3 to gather 1 000 backlinks for each of the most common currencies and calculated what proportion of the incoming links came from HYIP-related websites. The results are listed in the right-most column of the table. 72% of the backlinks to Perfect Money are from HYIP-related websites, as are 33% of the backlinks to LibertyReserve. This leads us to conclude that a substantial proportion of the revenue to these currencies comes from HYIPs. Note that for AlertPay, the third-most popular currency, only 10% of the incoming links are from HYIPs.
It is difficult to directly measure how many people and how much money are invested in HYIPs. However, we can use some publicly available proxies to derive an order-of-magnitude estimate of HYIP impact. As part of its Adwords program, Google offers a Keyword Tool that returns similar search phrases to those given as input. 4 We entered the phrases "hyip" and "high yield investment program", and were returned 100 closely related phrases. Google also offers a related service called Traffic Estimator that estimates for any phrase the number of global monthly searches. We plugged all 102 HYIP-related phrases into the tool to arrive at an estimate of 441 000 monthly searches for these terms on Google...Researchers investigating spam-advertised pharmaceuticals found that 0.5% of site visitors added items to their shopping carts [5], while in an earlier study they found an approximately 8% conversion rate for non-pharmaceutical goods [6]. Leontiadis et al. estimated that between 0.3% and 3% of people looking for drugs via web search ultimately purchased the goods from illicit retailers [7]. While the investment rate for HYIPs could undoubtedly differ from that for pharmaceuticals, these data points do suggest that a 1% conversion rate for HYIPs is plausible. From observation of the statistical information that some sites provide, we will guess that the average investment is $1 000. Plugging these numbers into the above formula we estimate that HYIPs attract at least $6 million per month in revenue.
Google's data shows that that 85% of HYIP-related searches are made from outside the US"