Former Jefferies fund manager faces criminal investigation over alleged Ponzi-like scheme

Federal prosecutors in Manhattan are investigating Jordan Chirico and allegations that his fund, 352 Capital, knowingly invested his money in a Ponzi-like scheme, said a person familiar with the matter who asked not to be identified discussing the investigation. Chirico received a grand jury subpoena as part of an investigation, according to court papers filed in August in a separate civil case involving him and the 352.

The government probe marks an escalation of scrutiny over Chirico’s management of 352, which was part of Jefferies’ Leucadia Asset Management arm. Jefferies began liquidating the fund over the summer, and 352 sued Chirico and others alleging fraud in July.

According to the lawsuit, Chirico directed the purchase of a large amount of bonds issued by WaterStation Management, a company that claimed to operate thousands of filtered water dispensers. His former employer claims that Chirico knew these machines did not exist, but continued to exist he put 352’s money into the scheme partly to recoup his own investment.

Water Machine Franchises

The investigation may not result in charges. Neither Chirico nor his attorneys responded to requests for comment, but they said in court filings that he was wrongfully terminated and said the allegations in the 352 lawsuit are without merit.

The filings referencing an investigation were filed by Chirico and 352 as part of a Delaware court battle over whether its Leucadia employment contract requires the fund to cover the former portfolio manager’s legal costs both in the lawsuit fraud, as well as in the criminal investigation.

The U.S. Attorney’s Office in Manhattan declined to comment on the existence of an investigation. Jefferies also declined to comment.

According to the 352 lawsuit, WaterStation claimed it owned and franchised its water machines. The company has purported to issue bonds to buy and deploy more machines, including for franchisees, 352 says.

“Instead of purchasing and operating water machines, WaterStation Management used the bond proceeds primarily to pay ‘franchisees’ a guaranteed return on their ‘investment’ or to buy out franchisees who complained about the business – a classic Ponzi scheme,” 352. said in its complaint.

Conflict of interest

The fund claims that those purchased franchisees included Chirico and his wife, who allegedly invested $7 million of their own money in WaterStation franchises. That was a conflict of interest that Chirico did not disclose to 352 before he began investing the fund’s money, according to the lawsuit.

Chirico, who joined Leucadia in 2020, reportedly first bought WaterStation bonds with 352 funds in April 2022, investing $15 million. In December 2023, Chirico doubled his 352% investment in WaterStation despite knowing it was a fraud, the fund says. It is said to have further increased 352’s investment to nearly $107 million over the next two months.

Leucadia fired Chirico in early June, according to the lawsuit. He then joined the restaurant chain FAT Brands Inc. as Head of Debt Capital Markets. He quit that job weeks later, shortly after 352 filed its lawsuit on July 3. FAT said in a statement at the time that Chirico was leaving to focus on defending 352’s lawsuit.

Several other investors sued Everett, Washington-based WaterStation and its founder, Ryan Wear. A group suing in Washington state court says the company raised about $100 million from hundreds of unsuspecting investors, promising returns of 12 percent to 20 percent. Investors say they were told their funds would be used to buy water dispensers at retail locations across the US.

Neither Wear nor WaterStation responded to messages seeking comment. A Washington state district court judge placed the company on trial in May and removed Wear as manager last month.