PONZI Operator Sentenced to 3 Life terms: What about Wall Street?

The bottom line is if someone offers you a return higher than the marketplace offers, there is no way for them to pay you except by selling more investments to new victims. You will almost definitely lose your money.

Mr. Gallagher promised a 5 to 8 percent return on his clients’ investments, according to court records. A vast majority of his clients were people in their 60s, 70s, 80s and 90s, and middle-class people who were not looking for enormous returns, but a stable retirement fund, according to court records.

see https://www.nytimes.com/2021/11/02/us/william-neil-doc-gallagher-ponzi-scheme-sentenced.html

I note this particular PONZI scheme because of its premise — slightly higher returns than available in the marketplace. Usually, PONZI operators draw victims by offering impossible returns. But like Wall Street, Gallagher set himself up to be a trusted source of financial information and he promoted himself as a spiritual adviser. He relied on the Christian faith and the businesses and networks associated with promoting schemes to older people observing the Christian faith.

Here is the similarity with the Wall Street securitizations scheme.

Like Gallagher, there was no financial product that matched the description of the “investment plan.” There was no securitization occurred of any promise, debt, or obligation issued by homeowners. The “plan” did not exist.

Gallagher marketed to seniors who trusted him on faith and their own carefully cultivated belief that Gallagher was a trusted source of information who know what he was doing. The Wall Street banks depended upon targeted advertising to those who lacked basic knowledge of finance, lending, and mortgage practices. Like Gallagher’s victims, many of these victims operated on faith or trust and the belief that was supported by advertising and targeted campaigns, including personal salespeople who were harvested from the ranks of convicted felons.

Like all Ponzi schemes, the “success” of Gallagher was pure fiction. It depended upon new investments to provide capital to pay previous investors. The success of the Wall Street securitization PONZI scheme depends on the continued sale of certificates to investors seeking higher than normal returns.

Like Gallagher, by advertising the slightly higher return on investment instead of bold returns like Madoff, Wall Street PONZI securitization schemes stayed below the radar. It wasn’t obvious that the promised returns were impossible. Madoff’s investor victims could have been alerted by the promised 16 % return.

The difference between the two is that Gallagher was detected, probably because he saturated the marketplace with his scheme. The Wall Street scheme survives, so far. But you can be sure that if buying of those certificates slows down or stops, the crash will come. I don’t know if the government will again prop up an illegal scheme, but I hope not.

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