(Bloomberg) – A former Jefferies Financial Group hedge fund manager has stayed a fraud lawsuit accusing him of knowingly investing more than $100 million of the fund’s money in a Ponzi-like scheme involving plumbing equipment. .
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Jordan Chirico, a former portfolio manager at 352 Capital, part of Jefferies’ Lucadia Asset Management, asked a judge Monday to dismiss the lawsuit 352 filed against him in July. He alleges that the fund did not know of any wrongdoing when it first purchased bonds issued by Water Station Management, and that Leucadia approved all investments in any event. said.
“Even an astute and sophisticated investor like Mr. Chirico can fall victim to unscrupulous actors through no fault of his own,” his attorney said in the motion. “Leucadia has failed to properly investigate and verify the baseless and stigmatizing allegations,” it added. For all eternity, Mr. Chirico was branded as despicable. ”
Mr. Jeffries declined to comment on the filing. Neither Chirico nor his attorney responded to requests for comment.
Water Station, its owner Ryan Ware, and several other people associated with the company were also sued by 352. Weir also did not respond to a request for comment.
Monday’s filing provides Chirico’s first detailed response to the 352 allegations. Bloomberg News reported last month that Chirico was under criminal investigation by Manhattan federal prosecutors. The investigation is in its early stages and may not lead to charges.
personal investment
352 alleges in the lawsuit that Chirico directed the purchase of large amounts of bonds issued by Water Station, which in turn operated and franchised thousands of filtered water vending machines and raised funds to make further purchases. He said that he claimed that
“Rather than purchasing and operating water dispensers, Water Station Management primarily pays guaranteed returns on their ‘investments’ to ‘franchisees’ or buys out franchisees who have complained about their business. , using the proceeds from the bonds.This is a classic Ponzi scheme,” the complaint states.
According to 352, Chirico knew these machines did not exist, but committed 352’s money to the scheme in order to recoup his $7 million private investment in the Water Station franchise.
Chirico said all decisions regarding the purchase of Water Station bonds are subject to review and approval by Leucadia executives. He accused them of a “misguided attempt to shift blame.”
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The former portfolio manager said he had invested in water station machines through a company he founded called C3 Capital, which he disclosed to 352 companies in 2020. He paid for them, saying he sold the machines to a company controlled by Ware in 2022 for an amount close to the original amount.
But he said Mr 352 did not allege that he “knew or should have known that there was anything wrong” at the water station at the time.
Chirico said Ware admitted in late January that the proceeds from the water machines that were being used to pay off the bonds actually came from other food and beverage machines. According to his motion, this was the first time Chirico learned of the alleged plan.
investment supervision
Chirico said that after learning of the alleged fraud, he negotiated amendments to the underlying loan documents, including an amendment to the terms under which Ware agreed not to engage in the day-to-day management of Water Station. These negotiations and changes were subject to Leucadia’s oversight, he said.
According to Chirico, Leucadia also announced in February that it would be able to “select a significant portion of traditional vending machines (as opposed to water vending machines) and the data and characteristics reported for such vending machines. It said it approved the agreement, specifically noting that it contained some inaccuracies. In the lawsuit, 352 alleges that Chirico approved the agreement.
According to 352, in its lawsuit, Chirico waived several events of default and amended the bond documents to allow Water Station to withdraw bond proceeds, but bondholders were unable to access the collateral. He accused the fund’s investments of being completely unsecured. Leucadia has knowingly executed the Waiver and Amendment.
Chirico was hired by Leucadia in 2020 because he had a “proven track record of success,” his lawyer said. 352 lawsuit caused serious damage to Chirico’s “previously impressive professional track record and personal reputation.”
Chirico joined restaurant chain FAT Brands in July as head of capital markets, but left the company a few weeks later to focus on defending 352 companies against lawsuits, Bloomberg reported at the time. Meanwhile, Mr. Jeffries began paring back his hedge fund’s trading positions.
A Washington state court judge placed Water Station in receivership in May and removed Ware from management in August.
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