Jefferies Financial Group Inc. has been hit with an investor class action lawsuit over bond purchases made by its 352 Capital fund in a water vending machine firm that federal prosecutors have called a scam.
According to the complaint filed in New York state court, Leucadia Asset Management’s 352 Capital poured millions of dollars into bonds issued by Water Station Management, which the government and Jefferies itself have alleged was a fraud. Jefferies, of which Leucadia is the asset management arm, is suing former 352 portfolio manager Jordan Chirico, who was also indicted last year.
In the latest lawsuit, the fund’s investors allege that Leucadia approved these bond purchases despite knowing the underlying collateral did not exist, and despite awareness that Chirico was personally invested in the water machine business.
A representative for Jefferies and Leucadia declined to comment. Jefferies has claimed in its suit that Chirico misled it about his investments in, and relationship with, Water Station.
The latest complaint joins a similar one filed by the Indiana Public Retirement System against Jefferies and Leucadia over losses from Water Station. The saga first became public in 2024 when Jefferies alleged Chirico directed the purchase of the bonds while knowing there were no machines.
Chirico is not named as a defendant in the latest suit. His lawyer declined to comment.
Chirico was charged with fraud by federal prosecutors in New York in August. At that time, Chirico’s lawyer said his client was a “victim” of the alleged fraud scheme and not “the villain.” The owner of the Water Station business, Ryan Wear, was also charged with fraud. Both have pleaded not guilty.
Filtered Water
Water Station allegedly issued bonds that it claimed would be used to finance the purchase and operation of thousands of filtered water vending machines. But according to the lawsuits and criminal charges, it actually directed proceeds from bond purchases mainly to pay or buy out “franchisees,” a group which allegedly included Chirico.
The plaintiffs in the latest lawsuit are Ashton Dennis and Ashley Dennis, who are co-trustees of the Dennis Revocable Living Trust. They’re seeking to represent individuals who invested in the 352 fund between its initial Water Station bond purchase on April 29, 2022 and its subsequent winding down in 2024. They’re looking for an unspecified amount of damages for what the lawsuit described as a “massive” fraud.
“Chirico and the 352 Fund—and by imputation, Defendants LAM and Jefferies—also learned that most of the collateral supposedly securing the bonds was either missing or did not exist,” the investors’ lawyers wrote in the complaint. “Shockingly, even after this discovery, the 352 Fund, with approval from LAM, continued to purchase millions of dollars of Water Station Management bonds.”
Leucadia also took steps to erode investor protections in bond documents, according to the complaint filed earlier this month. Leucadia and Jefferies agreed to waive various events of default, including “with respect to misrepresentations about the existence of collateral, and Water Station Management’s failure to provide timely financial statements,” it said.
The 352 investors allege that Leucadia Chief Operating Officer Matthew Smith and other compliance department members emailed about Chirico’s personal investments in a water-related vending machine business.
Smith didn’t immediately respond to a request for comment.
The complaint also names the bond offering’s placement agent REVL Securities and collateral manager REVL Capital as defendants, claiming they told the 352 Fund in 2023 and 2024 that thousands of water machines were missing but did not alert the trustee under the bond indenture.
Representatives for REVL didn’t immediately respond to a request for comment.
Beyond Water Station, Jefferies is involved in a number of legal battles. In one of those, Western Alliance Bancorp has sued the firm and Leucadia for at least $126 million alleging fraud and breach of contract over a loan tied to bankrupt car-parts supplier First Brands Group.
Top photo: The Jefferies Financial Group Inc. headquarters in New York. Bloomberg.
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