Defendants Charged in Over $200 Million Water Vending Machine Ponzi Scheme and Related Investment Fraud

Source: US FBI

United States Attorney for the Southern District of New York, Jay Clayton; Acting United States Attorney for the Western District of Washington, Teal Luthy Miller; Inspector in Charge of the New York Division of the United States Postal Inspection Service (“USPIS”), Daniel Brubaker; and Special Agent in Charge of the Seattle Field Office of the Federal Bureau of Investigation (“FBI”), W. Mike Herrington, announced today the unsealing of an Indictment and Superseding Indictment.  The first Indictment charges RYAN WEAR, the former owner and operator of Water Station Management LLC (“Water Station”), with securities and wire fraud in connection with WEAR raising more than $200 million from investors by selling them water vending machines that, in many cases, did not exist, and paying promised returns through new investor money.  The second, Superseding Indictment charges JORDAN CHIRICO, a former fund portfolio manager and investment adviser, with investment adviser fraud in connection with purchasing more than $100 million of Water Station bonds while concealing his personal financial stake in the company and, eventually, his knowledge of the fraud that had been perpetrated by WEAR.  Together, the defendants’ conduct caused hundreds of millions of dollars in losses to Water Station investors and bondholders.  The case has been assigned to U.S. District Judge Jennifer L. Rochon.

“Ryan Wear raised hundreds of millions of dollars through false promises of a water vending machine business that became nothing more than a scam that victimized retail investors, including military veterans,” U.S. Attorney Jay Clayton said.  “Jordan Chirico made matters worse by putting his own financial interests before his professional duties, investing clients’ money in Water Station—helping himself and hurting his investors—even after he knew it was a scam.  One fraud does not excuse another.  With the assistance of our dedicated law enforcement partners and our colleagues throughout the Department of Justice, this Office will continue to aggressively pursue financial frauds on Wall Street and Main Street.”

“From the relatively small city of Everett, Washington, to the major financial markets in New York, this fraud scheme had a broad reach,” said Acting U.S. Attorney Teal Luthy Miller.  “We appreciate our partnership with the Southern District of New York on this investigation.”

“The greed and deception of this Ponzi scheme has resulted in the same way they have throughout history, with unwitting investors seeing their hard-earned money grossly misused, and the scammers arrested and held accountable for their crimes,” said USPIS Inspector in Charge Daniel Brubaker.  “Postal Inspectors, along with our law enforcement partners, will continue to aggressively investigate and disrupt criminals from defrauding the American public.”

“The scale of this fraud, which resulted in at least $200 million in losses, is simply staggering,” said FBI Special Agent in Charge W. Mike Herrington.  “And the deception and obfuscation these two men allegedly engaged in to siphon funds from retail investors, even U.S. military veterans, is absolutely unconscionable.  FBI Seattle is committed to working with our law enforcement partners throughout Washington state and the nation to hold accountable those who abuse investors’ trust and defraud them of their hard-earned savings.”

According to the allegations contained in the Indictment and Superseding Indictment unsealed today:[1]

WEAR operated Water Station as a fraudulent investment scheme, deceiving investors about the nature and profitability of the purported business.  He raised over $200 million from retail investors and military veterans through multiple fraudulent solicitations, initially claiming that each investment of $8,500 would fund individual water machines generating passive income.  He later raised capital through bonds falsely claimed to be collateralized by numerous water vending machines.

WEAR perpetuated the fraud by manufacturing far fewer water machines than represented, selling the same machines to multiple investors, and claiming machines existed when they did not.  The deployed machines failed to generate the revenue promised by WEAR.  To satisfy questioning investors, WEAR operated a Ponzi-like scheme, using new investor funds to pay earlier investors while siphoning off millions to expand his traditional vending machine business and cover personal expenses.  When he could no longer raise sufficient funds, Water Station was forced into bankruptcy in August 2024, causing at least $200 million in investor losses.

CHIRICO engaged in a scheme to defraud 3|5|2 Capital ABS Master Fund LP (the “352 Fund”), an investment fund that was part of Jefferies Financial Group’s Leucadia Asset Management.  As a portfolio manager entrusted with hundreds of millions in investors’ funds, CHIRICO breached his fiduciary duties by causing the 352 Fund to invest almost $100 million in what he came to learn was a Ponzi scheme while concealing his personal financial stake in Water Station.

CHIRICO had a significant personal investment in Water Station, holding a joint venture partnership worth over $7 million.  When Water Station needed a capital infusion, the company launched a $70 million bond issuance in April 2022.  CHIRICO invested millions of the 352 Fund’s assets without fully disclosing his personal stake in Water Station, his monthly payments exceeding $90,000 from Water Station, or the $1.6 million he had received from referring friends and family members to invest in the company.  After investing the 352 Fund’s money, CHIRICO sold his interests back to Water Station without disclosing that he was being paid with bond proceeds originating from, among others, the 352 Fund and its investors.  CHIRICO also deliberately omitted other conflicts that jeopardized the fund’s investment, including millions of dollars that WEAR and Water Station owed CHIRICO in loan and note repayments.

By summer of 2023, CHIRICO learned of serious issues at Water Station, including the inability to locate thousands of water machines supposedly collateralizing the bonds.  Rather than alert investors, CHIRICO—who was personally owed more than $1 million by WEAR—prioritized his own repayment.  In January 2024, WEAR admitted to CHIRICO that thousands of machines collateralizing the bonds did not exist, and that WEAR had misappropriated tens of millions of dollars in bond proceeds.  Despite learning of this fraud—which another Water Station investor described to WEAR and CHIRICO as “the largest franchise fraud case in the history of the United States”—CHIRICO did not disclose Water Station’s problems to the 352 Fund or its investors. Instead, CHIRICO directed the 352 Fund to buy another $19 million of additional Water Station-issued bonds, some of the proceeds of which WEAR used to repay CHIRICO.  From April 2022 to February 2024, CHIRICO received from WEAR and Water Station more than $11 million in joint venture earnings, buyouts, and loan and note repayments.  The 352 Fund has not received any principal payments on $106.925 million of Water Station bonds, for which CHIRICO caused the fund and its affiliates to pay almost $100 million.

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WEAR, 49, of Everett, Washington, is charged with one count of securities fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison.  CHIRICO, 41, of Carmel, Indiana, is charged with one count of investment adviser fraud, which carries a maximum sentence of five years in prison, and one count of securities fraud, which carries a maximum sentence of 20 years in prison.

The maximum potential sentences in this case are prescribed by Congress and provided here for informational purposes only, as any sentencing of the defendants will be determined by a judge.

Mr. Clayton praised the outstanding work of the USPIS, FBI, Internal Revenue Service-Criminal Investigation, the Small Business Administration Office of Inspector General, and the Federal Deposit Insurance Corporation Office of Inspector General.  Mr. Clayton also thanked the U.S. Attorney’s Office for the Western District of Washington and the U.S. Securities and Exchange Commission for their assistance and cooperation in the investigation.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorneys Adam S. Hobson and Justin V. Rodriguez, along with Dane Westermeyer of the Western District of Washington, are in charge of the prosecution.

The charges contained in the Indictment and Superseding Indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.