Personal injury cases like his can take years to resolve, so to support himself, Mr. Anguisaca-Morales turned to a company known as a consumer legal funder.

Such firms float cash advances to plaintiffs to cover expenses like rent, food and medical care while their cases go through court. The advance is similar to a loan, except that if a case fails, the plaintiff doesn’t have to pay it back.

But most of the time, insurance companies settle personal injury cases, and the plaintiffs repay their advances — plus fees and interest of 35 to 45 percent a year, on average. One woman in New York who said she turned her ankle on a sidewalk, for example, received $76,500 in advances and ended up owing at least $1.4 million to her funder by the time her case settled, court records show.

Behind the scenes, The New York Times found, Wall Street has figured out how to profit from it all.

Some of the consumer funding industry’s biggest players are bundling thousands of these I.O.U.s together to create asset-backed securities, the financial products that were made infamous during the 2008 mortgage crisis and have come roaring back.

Asset-backed securities allow investors to buy a stake in the future payouts from a pool of debts or assets. Auto loans and credit card balances are routinely turned into securities. Others are spun from less traditional collateral: songwriting royalties, data centers, fast-food franchises — and now, cash advances given to personal injury plaintiffs.

For the investors who buy in, a security offers a regular cadence of payouts as lawsuits wrap up and advances are repaid, along with fees and interest. And for a funding firm, it offers a fast track to recouping past advances, and cash to parlay into new ones.

Funders say they are leveling the playing field by enabling injured people to take on insurers and other powerful adversaries.

“Insurance companies are not exactly the archangel,” said Jack Kelly, managing director of the American Legal Finance Association, a trade group. “If you cut off securitization, you cut off the supply of money to victims.”

But this cycle can also drive demand for additional and higher-value cases as funders try to build up collections of new I.O.U.s to attract more investors, The Times found in a review of lawsuits and interviews with more than 50 lawyers, paralegals, and current and former consumer legal funding employees.

“You are bringing in these third parties who have no interest in the integrity of the legal profession,” said Richard Painter, a professor of securities law and legal ethics at the University of Minnesota Law School. “They just simply want to make money off the justice system.”

The growth of the funding industry has coincided with an explosion in personal injury cases across the country. Over the past decade, these cases have soared 70 percent in state courts, and 33 percent in federal courts, according to data from Thomson Reuters Westlaw. Lawsuits now commonly seek seven-figure payouts for construction accidents, car crashes and slip-and-falls.

Though the securities aren’t publicly traded, The Times identified six major funders that securitize their I.O.U.s. In an industry of a few dozen companies, these six are among the largest. Together, they account for more than 90 percent of advances nationwide, according to the trade group.

The Times found more than two dozen of these securitization deals since 2020, representing hundreds of thousands of cases and raising $2.8 billion from investors. There are almost certainly more.

This ecosystem was built one lawsuit at a time: Funding companies market their services directly to consumers and deploy sales reps to cultivate relationships with lawyers. Lawyers often connect their clients with funders, which provide cash advances and then bundle them.

As the number of personal injury cases has climbed, government officials and the insurance industry have warned about increasing and even systemic fraud — raising questions about whether fraud is seeping into securities.

This year, New York’s governor announced a crackdown on car insurance fraud after regulators reported an 80 percent increase in dubious claims since the pandemic. Texas, California, Louisiana, Pennsylvania and Michigan have had double-digit increases in reported insurance fraud in the past five years.

Insurers and others have turned to an aggressive tactic to beat back what they say are mounting scams. Since 2023, companies including Geico, Allstate, Uber and FedEx have brought at least 60 civil racketeering lawsuits in five states. They accuse hundreds of lawyers, medical providers and others of scheming to gin up fake or exaggerated claims. Companies have also accused individual plaintiffs of fraud.

The racketeering cases argue that plaintiffs were encouraged or coerced to get unnecessary medical treatment to boost the value of their lawsuits.

In interviews, a dozen former employees of law firms and legal funders echoed these allegations, saying that funders and lawyers dangled the prospect of additional advances so that plaintiffs would undergo more surgeries. (Most spoke on the condition of anonymity for fear of professional reprisal.)

“A lot of times the clients would not want an operation like a cervical fusion because it is risky, but they also needed money,” said Daniel Laskowski, who worked in sales with the Florida-based legal funder USClaims until last year. “In a way, it’s like stiff-arming someone to say, ‘If you want this amount of money, you need to get this surgery.’”

Each salesperson had a monthly goal of issuing $500,000 in advances, he said. “They would have us call every attorney that we were working with to see if anyone needed money,” recalled Mr. Laskowski, who said he was fired for not generating enough business.

USClaims has funded multiple plaintiffs who were later accused of fraud, but the company itself has not faced direct allegations. The company said in a statement that if a case proves to be fraudulent, then “USClaims is among those who were defrauded and lost money.” It added that the company has a financial stake in its own securitizations, assuming some of the risk.

Racketeering lawsuits from insurance companies and others argue that many of the personal-injury plaintiffs are low-income, and some are recruited by “runners” working for law firms. Often, the plaintiffs end up with only a fraction of any settlement, the lawsuits say.

Last year, for instance, a construction worker in New York owed nearly $1.8 million to his funder by the time he received a $3.75 million settlement. After his lawyers received their one-third cut — as is customary — the worker got $500,000.

In Queens, N.Y., 11 people at the same address — a three-unit apartment building — all filed lawsuits claiming serious construction injuries within 18 months. At least five have received cash advances, and at least seven have had major surgeries including spinal and neck fusions, records show.

“People are being exploited, particularly when they are economically incentivized in a way that is very hard to turn down,” said Daniel Johnston, a partner at The Willis Law Group, which has represented insurers and other companies bringing fraud and racketeering lawsuits.

Mr. Kelly, of the trade group, said he believes fraud is minimal and the insurance industry simply wants to choke off the financing that gives plaintiffs the leverage and time to win higher settlements.

“If there really was a predominance of fraud in this marketplace,” he said, “don’t you think the insurance industry would have brought these thousands of cases forward to U.S. attorneys, wrapped them up in a bow, and said, ‘Here they are’?”

It is difficult to know whether cases of suspected fraud are underpinning securities, because funders are not required to disclose the individual advances they bundle.

But the six firms identified by The Times have securitized a majority of their advances, according to finance and funding professionals with direct knowledge of these deals. All of the funders have bankrolled plaintiffs later accused of fraud, and half have been named as defendants in racketeering suits.

One lawsuit filed in June drew a direct line from securitization to fraud. It claimed that the New York-based funder Golden Pear Funding participated in a scheme to inflate personal injury claims, drag out cases and maximize their payouts, “all while securitizing the claims for sale to outside investors.” Golden Pear declined to comment.

Legal-funding securities have mainly attracted institutional investors like mutual funds, offering reliable returns that aren’t directly affected by stock market swings. (The Times found returns as high as 17 percent, with averages around 7 percent.) Millions of Americans have a stake in them through retirement accounts or personal portfolios invested in those funds.

Even insurance companies themselves haven’t been able to resist these investments.

More than 30 casualty insurers — the companies that are usually on the hook for personal injury payouts — have invested at least $136 million in securities built on personal injury lawsuits since 2020. These include 16 members of the nonprofit National Insurance Crime Bureau, a leading anti-fraud trade group, which last year complained to Congress that third-party legal funding was fueling fraud.

Representatives for 10 of the 16 companies said they no longer held those investments and would not invest in future litigation-finance securities. The securities are “increasingly misaligned with our role as an insurer,” said Julia B. Jenson, a spokeswoman for Western National Insurance Group, whose affiliates had invested at least $14 million.

Mr. Anguisaca-Morales, who was 32 when he said he fell off a ladder at a Manhattan church in July 2020, was eventually accused by the church and its contractor of faking his accident amid a “climate of pervasive fraud.”

He said in a deposition that he had fled Ecuador about a year before and sought asylum in the United States.

According to a court filing, he was confined to bed for two months after the accident and later underwent knee and back surgery and had vertebrae fused in his neck with screws. Mr. Anguisaca-Morales “suffered a severe shock to his nervous system”; was plagued with headaches, vertigo and post-traumatic stress disorder; and could no longer work, his lawyers wrote.

Two law firms that have represented Mr. Anguisaca-Morales — Subin Associates and Cerchione Hurowitz — have been named as defendants in racketeering lawsuits, as have his funding company and two orthopedic surgeons who operated on him.

Mr. Anguisaca-Morales received funding from the Florida-based Pegasus Legal Capital, records show. The amount was not disclosed. It is unclear whether his advance was securitized, but Pegasus securitizes a vast majority of its cases, according to a person familiar with the funder’s practices.

In an interview, Mr. Anguisaca-Morales said his lawyers had told him that if he underwent surgeries, he could get a lot of money for the accident. The lawsuit and surgeries derailed his life, he said, declining to provide more details, including how he was connected with his lawyers or Pegasus.

“I don’t want to get into more problems,” Mr. Anguisaca-Morales said. “God will take care of people who do wrong in the world.” He said he was working to pay back the debt he incurred coming to the United States and to build up emergency funds in case he gets deported.

After The Times contacted Cerchione Hurowitz last month about the lawsuit, the firm withdrew it. The firm did not explain its reasoning, citing privilege. His doctors and funder declined to comment.

Former employees of law firms and funders said in interviews that with more and more money at stake, conditions are ripe for opportunists.

In 2024, a former vice president at Cartiga, a New York-based legal funder, sued the company, saying he had been pushed out in retaliation for warning leaders that they were financing dubious personal injury suits.

The ex-employee, Kristopher Hassett, said he told his bosses that he had identified a law firm and a runner who appeared to be manufacturing cases. In response, according to his complaint, Cartiga’s chief financial officer told him to keep the potentially fraudulent cases “on the books” to maintain volume.

Mr. Hassett’s lawsuit also claimed that Cartiga encouraged plaintiffs to undergo medical procedures to increase the value of their claims.

In a statement, Cartiga denied the allegations and said Mr. Hassett was a “disgruntled employee who was terminated as part of a reduction in force.” The company added that it “has acted properly and responsibly at all times.” Mr. Hassett declined to comment.

Since 2022, Cartiga has offered at least two securitizations, raising more than $175 million that could fund new plaintiffs.

This year, an insurance company filed a racketeering suit accusing Cartiga and other funders of financing unnecessary and overpriced surgeries, charging high interest rates and fees, and ultimately driving up the value of cases to increase their own profits.

The racketeering suit cites the case of Gina Lombana, who received an undisclosed amount of funding from Cartiga and another company. In 2022, she sued the owners of a Queens building for $6.5 million, saying she had tripped on an uneven sidewalk.

Ms. Lombana, who was 37 when she fell, claimed that her injuries required four surgeries, including fusing her spine and neck and removing at least part of her tailbone.

She later withdrew the tailbone injury from her claim, after a lawyer for the building owners noted that she said she had fallen forward, not backward.

Court records show that another funding company bought her advances and imposed interest and fees amounting to nearly 60 percent a year. By November, she will owe more than $1 million.

Ms. Lombana, who said in a deposition that it now hurt to shower and cook, has been accused of fraud in court filings by the building owners. She referred questions about her pending case to her lawyer, Chris Long of the firm McDonald Worley. “If there were fraud, we would not be involved,” Mr. Long said.

Cartiga said in a statement that while it couldn’t comment on specific clients, it “underwrites claims with rigor and independence.” The company said that in the “rare event” that parties in a case give false information that it fails to detect, the firm is also deceived and loses money.

In recent years, more than a dozen states have imposed restrictions on third-party litigation funding, including capping interest rates, banning referral fees to lawyers and medical providers, and requiring plaintiffs to disclose their funding sources in court.

West Virginia was the first of a small number of states to explicitly limit securitization. Lawmakers there were concerned that funding companies might be tempted to ignore signs of fraud as they sought plaintiffs to back, said Mike Romano, a plaintiff’s lawyer who helped craft the bipartisan bill as a state senator.

“This is where the practice of law and litigation finance were going,” said Mr. Romano, who previously investigated fraud for the U.S. Securities and Exchange Commission. “They are constantly looking for new ways to take the money they have, to invest and make more money.”

Lilia Yapparova and Wesley Parnell contributed reporting. Additional production by Rumsey Taylor.

METHODOLOGY

To measure the extent of Wall Street’s involvement in consumer legal funding, The Times examined public announcements by financial firms and ratings agencies, as well as listings on Bloomberg’s financial news service. The Times identified and analyzed 26 securitizations since 2020.

Funders are not required to disclose their investors. The Times, however, was able to identify many of the investors in those deals through their own filings with the U.S. Securities and Exchange Commission and state insurance regulators. To determine the total amount invested by these companies, The Times used the value reported for each company’s earliest holding of any given security.