The U.S. Securities and Exchange Commission has filed indictments for fraud against two individuals over a fraudulent franchise scheme involving water purification vending machines. They were: Ryan Wear, the CEO of WaterStation, and Jordan Chirico, a former Jefferies Financial Group Inc., hedge fund manager charged with fraud for directing nearly $100 million in bonds. These individuals targeted retail investors, including veterans, who have lost over $200 million.
The scheme involved selling water vending machines and placing them in areas where purified water was difficult to obtain. The water was sold by the gallon and was allegedly more profitable than other types of vending machines.
Unfortunately, of the more than 16,000 vending machines that were allegedly manufactured, further scrutiny revealed that less than 3,000 of those machines were manufactured, deployed, and operational. Of those machines deployed, most were assigned to multiple investors. One defrauded investor called the scheme “the largest franchise fraud case in the history of the United States.”
Company CEO Ryan Wear misappropriated most of the money raised for this alleged “investment.” Investors were not paid the dividends that they were promised. Prosecutors said Wear raised over $200 million selling the phantom water machines to investors.
Included in this scheme was the broker for 352 Capital Fund, Jordan Chirico, a hedge fund manager with Jefferies Financial Group Inc. Chirico had a vested interest and his own money invested in WaterStation through C3 Capital, but failed to disclose this to his customers. When Chirico discovered the deception, he ordered Ryan to sell more and pay him first. By putting his own financial interests first and failing to disclose a conflict of interest. According to the civil complaint filed by plaintiffs 3ǀ5ǀ2 Capital GP LLC and Leucadia Asset Management, LLC:
“Throughout the entire period of his employment, Chirico made investment decisions for the 352 Fund unilaterally. However, Chirico’s decision to invest in WaterStation Management was hopelessly conflicted. At the same time, Chirico was directing the 352 Fund and its affiliate to invest in WaterStation Management’s bonds, he had also invested $7 million in WaterStation Management franchises through a company, C3 Capital, that he owned jointly with his wife.”
Chirico also failed to disclose $90,000 in monthly payments he received, the additional money Wear owed him, or the $1.6 million in referral fees he received for helping his family and friends invest in WaterStation. Robert Gage, legal counsel for Chirico, calls him a “victim.”
WaterStation Bankruptcy And Charges
Jeffries Financial Group sued Wear, Chirico, and others involved in the scheme. The water vending machine company was later forced into bankruptcy, further unraveling the deception. Records from the bankruptcy revealed that most of the machines were non-existent or assigned to multiple investors, leading to lawsuits from impacted investors. Once learning of the deception, Chirico failed to disclose this information and instead directed the fund to purchase an additional $19 million in bonds to help him recoup his losses.
Ryan Wear is charged with wire fraud and securities fraud and could face a maximum 20-year sentence for each charge.
Jordan Chirico is charged with investment adviser fraud, which carries a maximum five-year sentence, and securities fraud, which carries a maximum 20-year sentence.
Prosecutors also stated that 352 Capital has received no principal payments on nearly $107 million worth of WaterStation bonds.
Did You Invest With WaterStation, 325 Capital, Or Jeffries Financial Group?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.