A former hedge fund manager for Jefferies Financial Group is pushing back against a fraud lawsuit accusing him of knowingly investing over $100m of the fund’s money in a Ponzi-like scheme involving water vending machines, according to a report by Bloomberg.
Jordan Chirico, the former portfolio manager of 352 Capital, a division of Jefferies’ Leucadia Asset Management, has filed a motion to dismiss the suit brought against him by 352 Capital in July. Chirico claims the fund has failed to provide evidence that he was aware of any wrongdoing when the initial purchases of bonds issued by WaterStation Management were made. Furthermore, he argued that all investments were approved by Leucadia.
“Even sophisticated investors like Mr Chirico can be victims of unscrupulous actors,” his lawyers stated in the motion, adding that Leucadia’s refusal to investigate properly before branding Chirico with “unsubstantiated and stigmatising allegations” was “despicable.”
The filing is Chirico’s first detailed response to 352’s allegations. Last month, Bloomberg News reported that Chirico is also facing a criminal investigation by federal prosecutors in Manhattan, though the investigation is in its early stages and may not result in charges.
According to the lawsuit, Chirico directed the purchase of a large number of bonds from WaterStation, which claimed it operated and franchised thousands of filtered water vending machines and was raising capital to expand its operations. However, 352 alleges that WaterStation used the bond proceeds to pay guaranteed returns to franchisees or to buy out dissatisfied franchisees – behaviour typical of a Ponzi scheme.
The lawsuit further claims that Chirico knew these water machines didn’t exist but still invested 352’s funds to recover his own undisclosed $7m personal investment in a WaterStation franchise.
In his defence, Chirico said all investment decisions involving WaterStation bonds were reviewed and approved by Leucadia executives, accusing them of a “misguided attempt to shift blame.”
Chirico disclosed his personal investment in WaterStation through his company, C3 Capital, to 352 in 2020. He claims to have sold his machines to a company controlled by Wear in 2022, recouping nearly the original purchase price.
Chirico asserts that 352 did not provide any evidence that he “knew or should have known” about the issues at WaterStation at the time of the investments.
