A former hedge fund manager at Jefferies Financial Group is currently under federal criminal investigation after being accused of defrauding the fund of over $100 million.
Manhattan prosecutors are investigating Jordan Chirico and allegations that the fund 352 Capital knowingly invested its money in a Ponzi-like scam, said an individual acquainted with the matter who asked to not be identified to debate the investigation. Chirico has received a grand jury subpoena as a part of the investigation, based on court documents filed in August in a separate civil case against him and 352.
The government investigation marks a tightening of control over Chirico’s management of 352, which was a part of Jefferies’ Leucadia Asset Management arm. Jefferies began Processing the fund in summer, and 352 sued Chirico and others who alleged fraud in July.
According to the lawsuit, Chirico ordered the acquisition of a considerable amount of bonds issued by WaterStation Management, an organization that claimed to operate hundreds of filtered water vending machines. His former employer claims Chirico knew those machines didn’t exist, but has partially invested 352’s money into the system to recoup his own investment.
Water Machine Franchises
The investigation is unlikely to lead to criminal charges. Neither Chirico nor his lawyers responded to requests for comment, but they’ve said in court filings that he was wrongfully fired and called the allegations within the 352 lawsuit baseless.
The documents referencing an investigation were filed by Chirico and 352 as a part of a legal dispute in a Delaware court over whether his employment contract with Leucadia requires the fund to cover the previous portfolio manager’s legal fees in each the fraud trial and the criminal investigation.
The Manhattan District Attorney’s Office declined to comment on the existence of an investigation. Jefferies also declined to comment.
According to 352’s lawsuit, WaterStation claimed that it each owned and franchised its water dispensers. The company presupposed to issue bonds to buy and deploy more machines, including for franchises, 352 says.
“Instead of purchasing and operating water dispensers, WaterStation Management used the proceeds from the bonds primarily to pay ‘franchisees’ the guaranteed returns on their ‘investment’ or to pay off franchisees who complained about the business – a classic pyramid scheme,” 352’s grievance said.
Conflict of interest
The fund claims that the franchisees it bought out included Chirico and his wife, who allegedly invested $7 million of their very own money in WaterStation franchises. This was a conflict of interest that Chirico didn’t open up to 352 before he began investing the fund’s money, the suit says.
Chirico, who joined Leucadia in 2020, is alleged to have first purchased WaterStation bonds with 352 Fund in April 2022, investing $15 million. In December 2023, Chirico doubled 352’s investment in WaterStation despite knowing it was a scam, the fund said. Over the subsequent few months, he is alleged to have further increased 352’s investment to almost $107 million.
According to the lawsuit, Leucadia fired Chirico in early June, and he then joined restaurant chain FAT Brands Inc. as head of debt markets. He resigned from that post a number of weeks later, shortly after 352 filed suit on July 3. FAT said in an announcement on the time that Chirico was leaving to concentrate on its defense against 352’s lawsuit.
Several other investors have sued Everett, Washington-based WaterStation and its founder, Ryan Wear. A bunch suing in Washington state court says the corporate raised about $100 million from lots of of unsuspecting investors by promising returns of between 12 and 20 percent. According to the investors, they were told their funds could be used to purchase water dispensers in retail stores across the U.S.
Neither Wear nor WaterStation responded to requests for comment. A Washington state judge ordered the corporate declared bankrupt in May and fired Wear as chief executive last month.
