Downtown Ponzi Scheme Busted

Federal agents raided the Water Street offices of John M. Donnelly today, Lindsay Barnes writes in The Hook, seeking evidence to support the indictment brought against him for stealing $11M from 31 investors in a Ponzi scheme. Tower Analysis Inc., located in the old train station next to the amphitheater, had agents descend on it and haul off evidence this morning. Donnelly approached some friends a decade ago, had them make small investments, and then used that money to raise more money. Each round brought more money, which he used to pay faux investment income to lower-level investors. (And if you can figure out how that practice can possibly end in anything other than ruin, you might have a future in running financial scams.) Along the way he made a million bucks in the past three years, claiming, awesomely that “using his background in astrophysics, Donnelly developed a proprietary model of financial markets using algorithms derived from the quantification of a fractal wave frequency model which he named Blue Logic.” See the SEC complaint for the nitty-gritty.

Incidentally, Donnelly’s wife is Deborah Donnelly, the fundraiser for UVa’s Curry School of Education. She’s not been accused of any wrongdoing, but given the nature of her job, that’s got to be awkward.

8 thoughts on “Downtown Ponzi Scheme Busted”

  1. I couldn’t decide between “a few hours ago” and “today,” and—rocket surgeon that I am—settled on “a few today.”

    Time to go home.

  2. I’m pretty sure that anyone who bought the phrase “a proprietary model of financial markets using algorithms derived from the quantification of a fractal wave frequency model …named Blue Logic” ought to lose their money.

  3. i have friend who is developing artificial intelligence under the pretense of predicting market behaviour. his boss actually cited that line from mr. donnely. ha! i mean, oh noes…

  4. Deborah Donnelly has been named a “relief defendant” in the SEC complaint, unfortunately, but hasn’t been charged with wrongdoing,for potentially having received ill-gotten gains. Their assets have been frozen; known assets include house and whatever monies are left in the trading entities.

  5. Donnelly hung out with some friends of mine who had a motorcycle racing team known as the Army of Darkness. They were among his victims.

  6. oniss: Don’t be too quick to dismiss words you don’t understand. It may have been a lie but it was a plausible sounding one for people with a technical analysis background. Stock market time series data is a multifractal system.

    To quote Wikipedia: “So far the most visible work has been in the area of applying fractals to market analysis, particularly arbitrage.”

    His description of a “fractal wave frequency model” may refer to the Elliott Wave Principle which is a widely accepted form of technical analysis.

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