Jefferies Financial Group’s hedge fund arm, 352 Capital, has escalated its legal pursuit to recover over $100m tied to an alleged Ponzi scheme involving filtered water vending machines and is now targeting a regional Washington bank it claims helped enable the fraud, according to a report by Bloomberg.
In a lawsuit filed in Seattle, 352 Capital accused First Fed Bank, a subsidiary of First Northwest Bancorp, of knowingly facilitating the scheme to protect its own exposure to WaterStation Management, a company that claimed to operate thousands of vending machines but allegedly fabricated key data.
According to the complaint, First Fed held bond proceeds from 352’s investments and was in a position to verify that the machines tied to the bonds didn’t exist. Instead, the fund claims the bank prioritised repaying its own $30m loan exposure to WaterStation and its franchisees.
The case is the latest chapter in a sprawling legal saga that began when 352 sued former portfolio manager Jordan Chirico, who allegedly directed the fund to invest in WaterStation bonds while failing to disclose a $7m personal investment he and his wife had already made in the company’s franchises. Chirico has denied wrongdoing and characterised the suit as a “misguided” attempt to shift blame.
Though a federal judge dismissed the original case, 352 re-filed the claims in New York state court earlier this month and has also targeted WaterStation’s founder, Ryan Wear, and other executives.
First Fed CEO Matthew Deines has denied the allegations, stating: “We are a 102-year-old community bank. This is a Wall Street firm trying to recoup funds. We were a victim like many others.”
Meanwhile, Washington State regulators have filed their own charges against WaterStation and its leadership.
