Episode Transcript
[00:00:00] Speaker A: Hello, all you beautiful people.
Welcome back to another deep dive into the vast world of financial fraud. From behind the Scams, I'm Miles. And today, Nick and Sue are tackling a case so bizarre, so stupidly daring, and frankly, so utterly unbelievable that we had to split it into two episodes.
This is a story taken directly from a federal indictment out of the Southern district of New York.
You may have heard of the ever busy men and women of sdny.
In fact, P. Diddy recently garnered them some unwanted attention. This is such a crazy story, we had to assign it a crazy name.
So we are calling both episodes H2. Oh, no. Inside the $200 million water station scam. In these two episodes, you will hear all about this slippery con about a company named Water Station.
This company promised investors revolutionary water vending machines, but delivered something far more sinister.
Part one takes us through Ryan Ware's masterpiece of deception.
Phantom water machines that existed mostly in PowerPoint presentations.
A Ponzi scheme that specifically targeted retail investors and military veterans, and a fraud that somehow managed to raise over $200 million selling machines that, well, mostly didn't exist.
Trust me, by the end of this episode, you'll understand why we needed extra time to unpack this aquatic absurdity.
[00:01:40] Speaker B: Hello, and welcome back to another episode of behind the Scams. I'm your host, Nick, and as always, I'm joined by my wife and co host, Sue. So today, sue, we're diving into a fascinating and frankly, quite disturbing case involving a man named Ryan Ware and his company, Water Station Management, llc.
[00:01:59] Speaker C: Water Station? That sounds so benign. Like, what kind of business was this?
[00:02:04] Speaker B: Well, that's where the deception truly began.
Ryan Ware presented Water Station as this incredibly innovative and lucrative opportunity centered around water vending machines. He marketed it as a source of passive income, promising investors that they would own these proprietary water vending machines that would just churn out profits.
[00:02:28] Speaker C: Passive income water machines. I can already see the appeal. Everyone wants that easy money, right? So how exactly did he pitch this to people? What was the hook?
[00:02:39] Speaker B: The hook was brilliantly simple, yet utterly fraudulent.
Ware claimed that for an investment of $8,500 per machine, you, the investor, would fund the manufacture of a water vending machine.
You would then own this machine, and a portion of the revenue it generated would flow directly back to you.
[00:03:03] Speaker C: Wow, that's surprising.
$8,500 per machine, and they would own it. That sounds like a pretty tangible asset to an investor, which probably made it feel more secure.
[00:03:16] Speaker B: Exactly. It played into that desire for a solid, understandable investment.
He promoted it as this lucrative passive income opportunity generated through a fleet of proprietary water vending machines. But here's the kicker. Ware knew from the very beginning that the company was nowhere near as profitable as he made it out to be.
And instead of using the investor funds for what he promised, he brazenly misappropriated them for his own personal use. And essentially to keep the fraud going.
[00:03:54] Speaker C: Oh, no. Really?
So from the get go, it was just a lie. And who were these investors he was targeting? Was it just anyone with a spare $8,500?
[00:04:05] Speaker B: Not just anyone, but. But a very specific and often vulnerable demographic.
He managed to raise over $200 million from investors, and a significant number of them were retail investors.
But what's particularly egregious is that many were also military veterans.
These are individuals often looking for stable, reliable ways to invest their hard earned money or their savings from service, making them particularly susceptible to the promise of passive income and a secure asset.
[00:04:43] Speaker C: That's crazy, but very scary at the same time. Targeting military veterans, people who've served our country, just makes this even more despicable.
So he got these initial investors in, claiming they'd own a machine and get revenue sharing.
Was that the only type of investment he offered?
[00:05:03] Speaker B: Not at all. As the scheme progressed and he needed more capital, he diversified his fraudulent offerings.
He later raised funds through bonds, falsely claiming that these bonds would finance the expansion of Water Station's business and would be fully collateralized by Water Station's numerous water vending machines.
[00:05:26] Speaker C: Wait, hold on. Are you saying he went from selling individual machines to individual investors to then selling bonds to larger entities, all supposedly backed by the same type of machines?
[00:05:37] Speaker B: Yeah, I know it sounds unbelievable, but scammers are incredibly convincing and they adapt. And then later still, he pursued direct investment contracts with even larger investors, using increasingly bold misrepresentations about Water Station's financial position and its growth prospects. It was an escalating series of deceptions, each one building on the last to bring in more and more money.
[00:06:09] Speaker C: So it started with the individual machines, then bonds, then these direct contracts. It sounds like he was constantly reinventing the wheel to keep the money flowing. How did Water Station even operate at first? Was there any legitimate business at all, or was it just a shell from day one?
[00:06:28] Speaker B: Good question. It wasn't entirely a shell. Water Station was actually launched around 2016.
Ware marketed, managed, maintained, and serviced a machine called the WST700, which he affectionately referred to as a water machine. It was pitched as a system that dispensed purified drinking water by the gallon using an alkaline mineralization process to give it the taste of fresh spring water.
[00:06:58] Speaker C: Oh my goodness. So there were actual machines. It wasn't just completely made up then?
[00:07:03] Speaker B: That's the nuance, isn't it? The business model was indeed to sell these water machines to investors, and then Water Station would operate and manage them as part of what Ware called a joint venture or JV program.
Under this program, investors would buy a machine for $8,500.
Ware would get a management fee. The retail location where the machine was installed would receive a commission, and the remaining revenues were supposed to be split 50, 50 between the investor and Ware. It seemed like a legitimate setup on.
[00:07:39] Speaker C: The surface, and that's what made it so appealing, especially to those looking for a truly passive investment where they didn't have to deal with the day to day.
It sounded like a hands off way to make money. But obviously something went very wrong indeed.
[00:07:57] Speaker B: The core problem, the ultimate fraud, was that the promises about the machines, profitability, their existence and the use of the funds were all a sham.
The foundations were built on sand, designed to collapse from the very start. And it just kept escalating, drawing in more people and more money until it couldn't be sustained any longer. Alright, so we've established that the initial pitch was already built on lies. But let's get into the nitty gritty of how Ryan Ware actually pulled off this Ponzi scheme. It was truly a classic example a Ponzi scheme.
[00:08:34] Speaker C: So he was just robbing Peter to pay Paul? I mean, how quickly did that start happening? And what were the immediate signs it wasn't a legitimate operation?
[00:08:43] Speaker B: Exactly, Sue. A textbook Ponzi. He perpetuated the fraud by doing a few critical things.
First, he sold far more water vending machines than Water Station ever manufactured. Think about that. He was selling something that didn't even exist.
[00:09:00] Speaker C: Oh my goodness. So these investors were buying machines that were never built. That's just phantom machines.
[00:09:07] Speaker B: Phantom machines. Precisely.
And it gets worse. He also sold the same machines to multiple investors.
So even the small fraction of machines that did exist were being owned by several different people simultaneously.
[00:09:23] Speaker C: Wait, hold on. Are you saying that if there was one physical machine, he might have sold it to five different people? Like this is your machine. And yours. And yours.
[00:09:33] Speaker B: Yeah, I know it sounds unbelievable, but that's what he did.
One particular water machine, for example, was assigned to at least 25 separate joint venture investors.
And get this. At the same time, he was using that very same machine as collateral in a bank loan application for One of.
[00:09:54] Speaker C: His other companies, he was literally double dipping, and then some with these non existent or single existing machines to how did he even keep track of which lie he told to whom?
[00:10:06] Speaker B: It's a masterclass in deception, isn't it? To cover up the missing machines, he would also sometimes assign traditional vending machines, like snack machines to investors who believed they were purchasing the much more valuable water machines.
And other times he just fabricated fake serial numbers entirely.
[00:10:28] Speaker C: Oh no. Really? Snack machines? So someone invested $8,500 for a water machine and might have ended up with a bag of chips dispenser? That's just insulting. On top of being fraudulent.
[00:10:44] Speaker B: It is.
The few machines that actually existed failed miserably at generating the revenue Ware had promised.
So he was constantly underpaying investors, paying them late, or just missing payments altogether. And when he did make a payment, it was often with money from a newer investor keeping the Ponzi cycle spinning.
[00:11:09] Speaker C: So the early investors got paid with new money, which gave the illusion of profitability. But it was just a house of cards.
How did investors react when they weren't seeing the returns they were promised?
[00:11:23] Speaker B: Well, some investors had access to a portal that supposedly allowed them to monitor their water machine's performance.
Unsurprisingly, they started complaining about disappointing revenue numbers.
Ware's response was to assign the same few high performing water machines to multiple investors.
It was another layer of deception to mislead them further and make it seem like things were better than they were.
[00:11:49] Speaker C: Wow, that's surprising. So if a machine was actually doing well, he'd just tell multiple people it was their machine to quiet their complaints. That's a clever, albeit terrible, way to manage expectations.
[00:12:04] Speaker B: Yeah, it was.
But as investor scrutiny increased, especially around the revenue data, he had to come up with another tactic.
So starting in 2019, he switched many investors from that original percentage of revenue structure we talked about to a flat fee structure.
[00:12:26] Speaker C: A flat fee. So instead of getting a percentage of what their machine supposedly earned, they just get a fixed amount every month. That sounds like an attempt to obscure the actual performance, doesn't it?
[00:12:39] Speaker B: Exactly. It was a cover up.
By moving to a flat fee, he removed the direct link between the machine's supposed performance and the investor's payment. This way, investors couldn't easily see that their machines weren't generating revenue or that their revenue was being pooled and diluted. So it made it harder for them to even see the red flags. It sounds like he was just trying to buy more time and keep the facade going.
Did it work? Did the Flat fee appease investors for long? Not in the long run.
By early 2022, his efforts to obscure and manipulate the company's revenue numbers simply didn't appease investors anymore.
The pressure continued to build as the underlying fraud was becoming too large to contain.
The promised high returns simply weren't sustainable. And new money wasn't coming in fast enough to keep up with the payouts he was obligated to make.
The scheme was showing serious cracks.
[00:13:43] Speaker C: So, Nick, it sounds like Ryan Ware's initial Ponzi scheme with the joint ventures and the phantom machines was starting to buckle. What was his next move when the pressure became too intense?
[00:13:55] Speaker B: Well, when the initial cracks started to show and he couldn't hide the mounting complaints anymore, Ware pivoted to what he hoped would be his salvation.
A bond offering.
This wasn't aimed at the smaller retail investors or military veterans anymore. This was a play for big money from larger institutional investors.
[00:14:18] Speaker C: A bond offering? That sounds like a completely different league of fundraising. How much was he trying to raise? And what was the pitch this time?
[00:14:27] Speaker B: Exactly. A different league and a much more sophisticated scam. This bond offering, which started around April 2022, was designed to raise substantial capital.
Water Station initially issued Class a notes for $56.25 million and class B notes for 15 million.
But through subsequent issuances, Ware ultimately managed to raise over $100 million in total from this bond offering.
[00:15:01] Speaker C: Over a hundred million dollars. Oh, my goodness. That's a massive amount of money. Who were these larger investors that he was able to convince? Well, Nick, hold on. I know the answer. Let me score some points here. The primary purchaser of the Class B notes, which were a significant chunk of that initial offering, was a New York based investment fund managed by a man named Jordan Chirico.
Now, Chirico is a key figure here because he already had extensive financial dealings with Ware and he himself was a joint venture investor in Water Station. He was very much intertwined.
So not only was Chirico an existing investor, but his fund then bought millions in in these new bonds. That sounds like a potential conflict of interest right from the start.
What did Ware claim this hundred million dollars would be used for?
[00:16:00] Speaker B: He claimed the bond proceeds would be used to purchase and deploy new water machines, or even to repurchase machines that had already been sold to joint venture partners. The whole premise was to expand Water Station's business and ensure its profitability.
[00:16:18] Speaker C: So business expansion. Like adding more real machines to the fleet. For real this time. And were these bonds supposedly secured by.
[00:16:26] Speaker B: Anything that was the big promise, Sue Ware falsely represented that these bonds would be fully secured by collateral. The water machines themselves and the revenue they supposedly generated were meant to guarantee the payment obligations under the bonds. They had a specific cap, too.
Ware claimed he would spend no more than $8,500 per machine for either new purchases or repurchases.
[00:16:54] Speaker C: Wait. As they say in football, stop the clock. Are you saying that the same water machines that were supposedly collateral for the bonds were also the ones that were either never built, double sold, or even just snack machines?
[00:17:08] Speaker B: Well, that's what we'll get into.
But the prospectus, or at least what was presented to these bondholders, made it clear that their investment was backed by a real tangible asset. These water machines and their generated revenue.
Water Station was even supposedly responsible for collecting this revenue and depositing it into a special bank account just for bondholder payments.
[00:17:35] Speaker C: That sounds like a legitimate system setup. If it were true, it gives a sense of security to the bondholders. Did Ware put any personal stake into this beyond just running the company?
[00:17:46] Speaker B: He did. To add another layer of legitimacy, Ware personally guaranteed payments to bondholders for up to approximately $11 million.
This made it seem like he had a significant personal commitment to the success and repayment of these bonds.
[00:18:03] Speaker C: A personal guarantee sounds like a strong commitment, but given his history, I'm already skeptical.
So this hundred million dollar bond offering was presented as a way to truly expand the business and secure returns for these larger investors. But in reality, it was just another layer on top of his initial fraudulent scheme, right?
[00:18:27] Speaker B: Precisely.
It was a larger scale, more complex iteration of the same game.
The underlying reality was that the bonds weren't fully secured and the machines were still largely fabricated or otherwise compromised.
It was simply a way to inject more capital into the Ponzi structure to keep it from collapsing under the weight of its own lies and to delay the inevitable.
[00:18:54] Speaker C: So, Nick, in the last segment, you mentioned that Ware claimed the bonds were fully secured by these water machines and their revenue. But given his history with the joint ventures, I'm already highly suspicious. What was the reality of this supposed collateral? Did these machines actually exist?
[00:19:15] Speaker B: That's an excellent question, Sue. And it gets right to the heart of the deception.
The reality was, as with the joint ventures, the collateral for the bonds was largely a mirage.
Ware continued his pattern of selling machines that didn't exist. And even worse, assigning the same few machines to multiple investors and creditors.
[00:19:39] Speaker C: So he literally used the same physical machine as collateral for multiple different bonds. And for the joint ventures, too.
How could he possibly keep Track of that or even pretend it was legitimate.
[00:19:52] Speaker B: Oh, he did. The documents show that at least one particular water machine was assigned to a staggering 25 separate joint venture investors. And at the same time, he was using that very same machine as collateral in a bank loan application for one of his other companies.
It was a shell game just on a much grander scale now involving millions from bondholders.
[00:20:19] Speaker C: 25 investors for one machine and using it for bank loans. It's. It's like musical chairs, but with people's life savings.
[00:20:28] Speaker B: It sure is. And it didn't stop there. As I mentioned earlier, he also covered up the missing water machines by assigning traditional vending machines like snack machines to investors who believed they were purchasing the much more valuable WST 700 water machines. And other times he simply fabricated fake serial numbers for machines that never existed at all.
[00:20:54] Speaker C: So again, Nick, people thought they were investing in a high tech water dispensing system, but they were actually getting a theoretical snack machine or nothing at all.
How on earth did he explain the lack of revenue or physical machines to these bondholders and the collateral managers? I'm getting anxiety just thinking about having to balance all these lies. I guess I am just not suited for the Ponzi scheme business. Thank the Lord for that.
[00:21:23] Speaker B: I hear you, but this is where the audacity really kicks in.
To keep the illusion going, Ware didn't just fabricate machines. He also fabricated the financial performance of Water Station. He drastically inflated the monthly revenue reports that he submitted to the bond collateral manager.
[00:21:43] Speaker C: Inflated by how much? A little here, a little there. What are we looking at here, Nick?
[00:21:49] Speaker B: Try a lot. The reports claimed earnings that were over 50 times greater than Water Station's actual figures.
50 times? It was a complete fantasy.
[00:21:59] Speaker C: Oh my goodness. 50 times. That's not just inflating, that's just making numbers up out of thin air. How did anyone believe that? Or how long could he possibly sustain such a blatant lie?
[00:22:13] Speaker B: I mean, it's truly mind boggling, isn't it? He relied on a combination of complex financial structures, layers of misdirection, and. And the fact that most investors weren't going out to physically inspect the machines.
Plus, by showing these inflated revenue reports, he created the illusion of a highly successful cash generating business which would in theory justify the investment and keep the bondholders from digging too deep too quickly.
[00:22:47] Speaker C: Wow, that's surprising. It just goes to show how elaborate these skills scams can become. And how a well crafted lie backed by official looking documents can deceive even sophisticated investors.
So he Wasn't just hiding missing machines. He was actively making up a fictional, incredibly profitable business to go along with them.
[00:23:10] Speaker B: I know, right? It was a house of cards built on non existent machines and imaginary profits.
All designed to keep new money flowing in to pay off earlier investors. And, of course, to line his own pockets. But as with all Ponzi schemes, the music eventually has to stop.
[00:23:30] Speaker C: And it sounds like the orchestra was about to pack up their instruments. So what finally triggered the collapse? How did Ryan Ware's elaborate fraud finally come crashing down?
[00:23:41] Speaker B: Well, the core of any Ponzi scheme is the constant need for new money.
Ware just couldn't keep it going.
He eventually failed to raise enough additional funds to conceal the past losses and the massive misappropriation of money.
Without that new capital, he couldn't make the promised payments to satisfy investor obligations or pay the bondholders.
[00:24:04] Speaker C: Oh, no. Really? So the well just ran dry. What was the immediate impact of that?
[00:24:09] Speaker B: It led to the inevitable.
In August 2024, water station was forced into bankruptcy.
As of the date of the indictment, the investors in this scheme had lost over $200 million.
[00:24:24] Speaker C: $200 million? Oh, my goodness. That's a staggering amount. So after all these intricate layers of deception, fabricating machines, inflating revenues in, it just came down to a simple lack of cash flow.
[00:24:40] Speaker B: Exactly. The illusion couldn't be sustained. The numbers didn't add up. And when he couldn't bring in enough new investor money to cover the old promises and his own lavish spending, it all imploded. It's the classic Ponzi scheme unraveling.
[00:24:57] Speaker C: And speaking of his own spending, you mentioned he was lining his own pockets. How much of that $200 million did he personally benefit from? What did he do with all that misappropriated investor money?
[00:25:11] Speaker B: That's the truly infuriating part. The indictment clearly states that he misappropriated investor funds for personal use and to perpetuate the fraud.
This wasn't just about keeping the company afloat. It was about his personal enrichment. He siphoned off millions to expand his personal vending machine empire, which was completely separate from Water Station, and to cover his personal expenses.
We're talking about luxury real estate. A lifestyle funded directly by the unsuspecting investors who thought they were earning passive income.
[00:25:50] Speaker C: So not only did he create a fictitious business, but he then used the money from that fictitious business to fund his actual personal businesses and his own life. The sheer audacity of it. To literally steal from people who trusted him to grow his own wealth.
[00:26:09] Speaker B: It's a Blatant abuse of trust, Sue. He promised a lucrative passive income opportunity targeting retail investors and military veterans, people often looking for stable returns.
Instead, he knew the company wasn't profitable and systematically used their investments to fund his lifestyle and keep the fraud going just long enough to extract more money.
[00:26:34] Speaker C: I mean, it's just heartbreaking to think about those military veterans, for example, who were likely looking for a secure investment for their future, and instead, their money was used to buy Ryan Ware more real estate. So was he ever able to make any more payments to anyone after August 2024?
[00:26:53] Speaker B: No, not at all. Once Water Station entered involuntary bankruptcy in August 2024, Ryan Ware never made another payment to the bondholders or any of the other investors. It just completely stopped.
[00:27:08] Speaker C: So it just evaporated. $200 million gone. It's just so sad and infuriating.
So we've heard about Ryan Ware and the total implosion of Water Station, which is just heartbreaking for everyone involved, especially the investors. But you mentioned a bond offering, which sounds like it brought in even more money and presumably more victims. Was there another key player involved in that part of the scheme?
[00:27:34] Speaker B: Absolutely, Sue. This is where the story takes another turn and introduces a critical figure. Jordan Chirico. He wasn't just any investor. He was a significant player, both personally and professionally.
[00:27:48] Speaker C: Jordan Chirico. Okay, tell me more. How did he get involved with Water Station, and what was his role?
[00:27:54] Speaker B: So Jordan Chirico became a personal investor in Water station back in 2018.
He was drawn in by the same promises of lucrative returns from these water vending machines. Much like the retail investors, he even created his own company, C3 Capital, Inc.
With his wife, specifically for this investment.
[00:28:16] Speaker C: So he started as a regular investor, just like the others who believed in this water machine concept.
[00:28:22] Speaker B: That's right. Initially, between 2018 and 2021, Chirico personally purchased a total of 854 water machines through C3 Capital.
At the 8,500 price per machine, that's approximately $7.2 million invested. It was a substantial personal stake.
[00:28:44] Speaker C: Wow. That's a huge personal investment.
So he really believed in it. Or at least he put a lot of his own money into it. What exactly Was his company, C3 Capital, doing then? Was it just a shell for his Water Station investments?
[00:28:59] Speaker B: Pretty much.
Water Station's business model, as we discussed, was selling these machines to investors and then operating them as part of a joint venture program.
C3 Capital was essentially Chirico's vehicle for participating in that program, owning and receiving revenue from his machines.
[00:29:19] Speaker C: Okay, so he's a big personal investor, but you said he was also a critical figure professionally. What was his professional role that made him so important to this whole. Whole fraud?
[00:29:31] Speaker B: This is where it gets really interesting and frankly problematic.
In May 2020, after he had already made millions of dollars of his own personal investments in Water Station, Jordan Chirico joined Leucadia Asset Management, or lam. This is a registered investment advisor and a wholly owned subsidiary of Jefferies Financial Group, a major investment bank based in New York.
[00:29:59] Speaker C: Wait, hold on. He's already got millions invested personally in Water Station and then he goes to work for a major financial group as an investment advisor? That sounds like a massive conflict of interest waiting to happen.
[00:30:15] Speaker B: Precisely, Sue. And it only gets worse.
Chirico joined Lamb to establish a new hedge fund called the 352 fund, more commonly referred to as the 352 fund.
This fund was focused on asset backed securities across various industries, including equipment and small business securitization.
His role? He was the portfolio manager for the 352 fund.
[00:30:44] Speaker C: A portfolio manager? So he had direct control over where a fund fund with hundreds of millions of dollars would invest?
[00:30:51] Speaker B: Yep. And as the portfolio manager, Chirico had the power to make investment decisions on behalf of the 352 fund.
This meant he owed fiduciary duties of care and utmost good faith and loyalty to the fund and its investors.
This included an affirmative duty to disclose all material facts to the 352 Fund and its investors whose capital he was managing.
[00:31:18] Speaker C: Yikes. So he has this massive personal investment in Water Station, which is already a questionable venture, and then he gains the power to direct a huge investment fund with other people's money towards, well, potentially that same questionable venture. The stage is set for something really unethical, isn't it?
[00:31:41] Speaker B: It certainly is.
This dual role, personal investor in Water Station and then portfolio manager directing a large fund created a fundamental conflict. And as we'll see, he didn't exactly handle that conflict with the transparency and good faith his fiduciary duties required.
[00:32:02] Speaker C: So Nick, we've established that Jordan Chirico had a significant personal stake in Water Station through his company, C3 Capital, even before he joined Leucadia Asset Management as a portfolio manager.
My gut tells me this is where the real problems begin.
How exactly did this personal investment translate into ongoing financial benefits for him? And what did he do about disclosing it?
[00:32:30] Speaker B: You're absolutely right, Sue. This is where his actions really start to cross. Cross ethical and eventually legal lines.
So as we mentioned, he bought 854 machines. An investment of over $7 million.
Initially, the joint venture arrangement with Water Station was a 50:50 split of net profits from these machines.
But then, around 2019, Chirico asked Ryan Ware to change his arrangement.
[00:33:01] Speaker C: A change? What kind of change? Was he not making enough, or was he trying to simplify things?
[00:33:07] Speaker B: Well, he moved from a revenue percentage model to a flat 15% yearly return on his water machine's purchase price.
This meant C3 Capital began receiving a steady monthly payment. It started at around $37,000. Then after he bought more machines in March 2020, it jumped to approximately $68,000 a month. And by late 2021, after another machine purchase, it reached about $90,000 a month.
[00:33:40] Speaker C: $90,000 a month? Just from his personal investment.
Oh, my goodness. That's a massive income stream.
[00:33:47] Speaker B: It certainly is. And it wasn't just those monthly payments. In addition to his direct investment, Jordan Chirico also received over $1.6 million in fees from Ryan Ware between December 2020 and February 2022.
[00:34:03] Speaker C: What? $1.6 million in fees? What kind of fees were these?
[00:34:09] Speaker B: These were referral fees. He was getting paid for bringing in friends and family members to invest in Water Station's joint venture program.
So he was profiting both from his own machines and from the investments of people he referred.
[00:34:23] Speaker C: So he's not just an investor. He's actively promoting this scheme and getting paid for it. That just screams conflict of interest, Especially once he became a portfolio manager for a major hedge fund.
Did Leucadia Asset Management have policies about outside business activities or disclosing conflicts?
[00:34:45] Speaker B: They absolutely did.
As a LAM employee, Chirico was bound by Jeffrey's policies.
These policies explicitly required employees to disclose and seek approval for any outside business activities.
They also prohibited employees from serving as officers or directors for private companies if it created a conflict of interest.
The expectation was that employees would devote their full time and efforts to the firm's business and avoid anything that might might interfere or conflict.
[00:35:19] Speaker C: So he knew the rules. What did he do? Did he disclose everything?
Did he get approval for his C3 capital activities and those huge monthly payments and referral fees?
[00:35:30] Speaker B: Here's where the deliberate concealment comes in, Sue. Despite these clear obligations, Chirico repeatedly omitted and concealed his outside ownership interest in Water Station and the thousands and, and later millions of dollars he was receiving in monthly income and referral fees.
[00:35:48] Speaker C: Oh, no. Really? He just didn't say anything?
[00:35:51] Speaker B: Not only did he not say anything, he actively misrepresented it. For example, in August 2020, Chirico reported that he didn't have any employee employee related business activities affiliations to disclose.
This was While he owned 750 water machines through C3 Capital and was receiving approximately $68,000 per month in payments.
[00:36:18] Speaker C: He outright lied on an official disclosure. Did they not have a way to verify this kind of information?
[00:36:24] Speaker B: Well, later in December 2020, he did disclose the existence of his company, C3 Capital, describing it vaguely as an investment in water related vending machines within retail establishments.
But he completely omitted any mention of Water Station itself or the millions of dollars worth of water machines he owned. And he falsely listed his anticipated compensation from C3 Capital as zero, even though he was receiving $68,000 a month.
[00:36:59] Speaker C: Zero? That's just a blatant lie. And he tried to obscure the nature of the business too.
This is beyond just an oversight, isn't it?
[00:37:07] Speaker B: It absolutely is. He also obscured the start date of his business activity, claiming it began on January 1, 2021 instead of 2018, when C3 Capital was actually created and he first purchased water machines.
And he continued to make these false certifications and annual compliance reports for several years.
[00:37:30] Speaker C: C. So for years he was actively hiding this massive financial interest and income while managing a fund and having a fiduciary duty to disclose all material facts to his investors. He was putting his personal enrichment squarely ahead of his professional responsibilities. I mean, that's just a complete betrayal of.
[00:37:54] Speaker B: It is Sue. And this deliberate concealment set the stage for even more egregious actions where he would go on to direct the very fund he managed to invest heavily in, Water Station, while still concealing his personal self serving interests.
His actions directly violated his fiduciary duties and Jeffrey's own policies, creating a massive undisclosed conflict that would ultimately cost his fund and its investors dearly. So, sue, we've just discussed how Jordan Chirico meticulously concealed his massive personal financial interests in Water Station from his employer, Leucadia Asset Management, and from the 352 fund investors. But it gets worse.
Despite these glaring undisclosed conflicts, he wasn't just a passive investor in the background.
[00:38:48] Speaker C: Oh, I'm ready for it. So what did he do next? Did he start pushing the fund? He managed to get involved. Because that would be the ultimate betrayal of trust, wouldn't it? I mean, he played a crucial active role. After he had made all his personal investments and knowing how much money he was already pulling out, Chirico actually encouraged Ryan Ware to launch this big bond offering for Water Station.
On top of all that, he knew this company was already, well, a bit shady with its machine numbers and his own personal payouts. But he still told Ware to go after more investor money.
[00:39:28] Speaker B: That's right. He saw an opportunity. The bond offering was designed to raise significant capital for Water Station, supposedly to purchase and deploy more water machines. And as part of this, water Station issued two types of notes.
Class A notes totaling $56.2 million and Class B notes for $15 million.
[00:39:54] Speaker C: Okay, so big money. And who was buying these notes? Was it just random investors or was Chirico directly involved with his fund?
[00:40:02] Speaker B: Well, the Class A notes went to a regional bank.
But for the Class B notes, which were $15 million, he. In April 2022, Chirico arranged for the 352 fund and an affiliate, Jeffries Strategic Investments, or JSI, to purchase them.
[00:40:23] Speaker C: He arranged for his own fund to buy them.
So the fund he was managing with all these investors capital was buying into a company where their portfolio manager had a massive undisclosed personal stake and was already benefiting immensely. That's just. I mean, that's incredibly brazen, isn't it?
[00:40:45] Speaker B: It absolutely is. And this is where his fiduciary duties come directly into play. As the portfolio manager, he was supposed to act in the best interest of the 352 Fund and its investors. But before he directed the fund to make this multimillion dollar purchase of Water Station's Class B notes, he deliberately concealed everything.
[00:41:09] Speaker C: Everything? You mean he didn't just forget to mention a detail or two? He actively kept it hidden?
[00:41:14] Speaker B: You are correct, my dear. He completely omitted from both Leucadia Asset management and the 352 fund investors that he was deeply conflicted. He didn't disclose his more than $7 million in water machines.
He didn't mention the over $90,000 he was receiving monthly from Water Station.
He didn't disclose the $1.6 million in referral fees he'd received from sending friends and family to Water Station's joint venture program.
All of this was kept entirely secret.
[00:41:53] Speaker C: So he was literally steering his clients money into a company he personally benefited from. A company that was by all accounts already showing signs of being a Ponzi scheme. And he did all of this while hiding his own financial ties.
He leveraged his position for personal gain, plain and simple.
[00:42:16] Speaker B: That's the core of it, Sue. He was effectively using the 352 funds capital to prop up a company that was paying him substantial personal income, all while violating his fiduciary duties and Jeffrey's own policies designed to prevent such conflicts.
He was Supposed to be a guardian of his investors money. But he was using it to support his own undisclosed, highly profitable and ultimately fraudulent investments.
[00:42:46] Speaker C: It's like he was building his own house with other people's bricks and then getting them to pay for the bricks as well. It's a very intricate web of deception.
And the investors, they had no idea, did they? No one at LAM was questioning these investments at this point.
[00:43:04] Speaker B: Not at this point, no. The concealment was effective enough to allow these initial bond purchases to go through the system. Relied on his honest disclosure. And he completely betrayed that trust.
This investment by the 352 fund into water station's bonds was a direct consequence of Chirico's deceptive direction, driven by his personal financial interests rather than the best interests of his clients.
So sue, we've just revealed how Jordan Chirico, despite his glaring conflicts, pushed his fund, the 352 fund, to invest millions in Water Station's bonds. You'd think at that point he'd be content with his undisclosed personal gains and his fund's investment, right?
[00:43:56] Speaker C: You'd hope so, Nick. You'd really hope so. But knowing these stories, I have a feeling it just gets worse. He's already shown he's willing to betray trust for personal profit. What more more could he possibly do?
[00:44:11] Speaker B: Well, this is where it gets even more self serving and frankly, quite bold.
Shortly after he got the 352 fund to make that significant investment in Water Station bonds, Chirico started having discussions to sell his own personal water machines back to Water Station.
[00:44:31] Speaker C: Are you saying he encouraged his fund to invest in the company and then immediately, immediately tried to cash out his own personal stake in that very same company?
It's like he knew the ship was going down, so he grabbed his lifeboat first.
[00:44:46] Speaker B: You've hit the nail on the head, Sue. In August 2022, Chirico proposed selling his company, C3 Capital, which owned his 854 water machines, back to Ryan Ware or one of Ware's companies.
The proposed price was over $9 million.
[00:45:07] Speaker C: Over 9 million for his machines.
How did he justify that price? Especially if the bond offering capped machine purchases at $8,500 each.
[00:45:20] Speaker B: That's the critical point. His 854 machines at the $8,500 bond cap would only total about $7.2 million.
But Chirico's proposal was for about $8.1 million for the machines and an additional $1.1 million for outstanding referral fees.
So right there he was asking for more than the official cap allowed.
[00:45:49] Speaker C: Oh no. Really? So he was directly circumventing the very rules of that were supposed to protect the bond holders like his own fund. How did he manage to pull that off?
[00:46:00] Speaker B: He devised a way to get around it. He suggested that he and Ryan Ware value his water machines at the capped $8,500 per machine, making the total for the machines seem compliant at $7.2 million.
[00:46:14] Speaker C: Okay, that sounds like it follows the rules superficially, but here's the kicker.
[00:46:19] Speaker B: He also insisted on being given an undisclosed seller's note for an additional $1.9 million.
This note would bring his total payout back up to that 9.1 million dollar figure he initially wanted.
He specifically stated that this note would not be paid off with proceeds from the bond issuance, which, as we know, was the only real source of significant funds for Water Station at this point.
[00:46:48] Speaker C: So he created a secret side deal to get the extra money. And he pretended it wouldn't come from the bond funds. But where else would it come from? Water Station was already struggling to make money. This just sounds like a direct betrayal.
[00:47:04] Speaker B: It absolutely was.
And despite his insistence that the note wouldn't be paid from bond proceeds, Chirico was then paid $7.2 million directly from from Water Station's bond proceeds.
Not only that, in connection with this sale, Ryan ware also forgave $470,000 in loans that he had previously made to Chirico through C3 capital.
[00:47:29] Speaker C: He got paid millions from the bond money and then had almost half a million dollars in debt just erased. That's just beyond belief. And I assume, based on everything else, that he didn't tell anyone about this, did he? His employer, the 352 fund investors.
[00:47:49] Speaker B: Chirico deliberately omitted any mention of this conflicted transaction from both Leucadia Asset Management and the three five two Fund investors. He completely failed to disclose that he was selling his personal water machines back to Water Station just months after he had caused the 352 fund to invest heavily in the company.
He also concealed that he was receiving over $7 million in bond proceeds from Water Station and that Ryan Ware was forgiving nearly $500,000 in loans as part of the deal.
[00:48:31] Speaker C: This is just a massive breach of his fiduciary duties.
He was essentially using his client's money indirectly to enrich himself and to get out of his own problematic investment.
The fact that he was also getting debt forgiven just adds insult to injury for the investors.
[00:48:53] Speaker B: Indeed, the $1.9 million seller's note was, in essence, an end run around the Maximum purchase purchase price set in the bond offering materials. And that note wasn't just a one time thing. It provided for ongoing payments to Chirico, which further depleted Water Station's cash.
[00:49:13] Speaker C: So even after he got his initial millions, Water Station was still obligated to pay him more, which would further strain their already dwindling resources.
Resources, that I might add, were supposed to be securing the bondholder's investments. So these undisclosed transactions were directly contrary to the interests of the 352-fund investors who were now holders of Water Station bonds. Every dollar Chirico extracted for his personal gain, whether through the direct payment or the subsequent note payments, was a dollar less available to Water Station for its operations or more importantly, to repay the bondholders.
So he was effectively prioritizing his own personal cash flow over the very bond payments his fund was now relying on.
It's a classic case of lining your own pockets while your clients take the fall. It's truly a shocking level of self interest and deception.
[00:50:17] Speaker B: It is. He was supposed to be safeguarding their capital, but instead he was maneuvering to liquidate his own stake at a premium, using the very funds that his clients had provided.
This move alone speaks volumes about his priorities and his complete disregard for his professional obligations.
So, sue, we've just revealed how Jordan Chirico, despite his glaring conflicts, pushed his fund, the 352 fund, to invest millions in Water Stations bonds. You'd think at that point he'd be content with his undisclosed personal gains and his fund's investment, right?
[00:51:01] Speaker C: You'd hope so, Nick. You'd really hope so. But knowing these stories, I have a feeling it just gets worse. He's already shown he's willing to willing to betray trust for personal profit. What more could he possibly do?
[00:51:15] Speaker B: Well, this is where it gets even more self serving and frankly, even more audacious.
So shortly after he got the 352 fund to make that significant investment in Water Station bonds, Chirico started having discussions to sell his own personal water machines back to Water Station. But I know I am a little tired with all this fuzzy math and deception. So let's save the rest of our story for part two of this podcast. Trust me, you're not going to want to miss how this story ends. I find it quite fascinating.
[00:51:51] Speaker C: I do too, Nick. So to our listeners, please tune back in for part two of this episode. We got much more for you. We are already working real hard on it and should have it here real soon. Soon. Bye for now.
[00:52:08] Speaker A: So to quickly recap part one, we had Ryan Ware selling invisible water machines to unsuspecting investors like some kind of hydration magician.
But wait, there's more.
In Part two, we will dig deeper into the exploits of Jordan Chirico, a portfolio manager at a major investment firm, who apparently looked at Ryan's phantom water empire and thought, you know what?
I want in on this action.
But Chiriko had his own massive conflicts of interest brewing.
He secretly invested millions of his own money while simultaneously directing his investment fund to pour even more cash into Water Station.
It's like watching someone double down on a losing poker hand, except the chips are other people's retirement savings.
Spoiler alert.
Both schemes eventually collapsed into bankruptcy, leaving a trail of devastated investors in their wake.
