Episode Transcript
[00:00:01] Speaker A: Welcome back, listeners, to part two of our podcast episode named Thirsty for How Phantom Water Machines Drained Investors Dry. In part one, Ryan Ware sold phantom water machines and built a Ponzi scheme that drained investors dry.
Now in part two, the fraud gets even bolder with insider conflicts, shady bond deals, and Jordan Chirico cashing in with while everyone else lost big. As you may remember, Jordan Chirico encouraged his fund to invest in the water company and then immediately tried to cash out his own personal stake in that very same company very suspiciously. It was like he knew the ship was going down, so he grabbed his lifeboat first. He was not sticking around on the Titanic for long. He was not the kind of guy to stick around and go down with this saint sinking ship, that's for sure.
[00:00:57] 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 a staggering $9.2 million.
[00:01:17] Speaker A: Over 9 million for his machines. How did he justify that price? Especially if the bond offering capped machine purchases at 8,500 DOL each?
[00:01:28] Speaker B: That's the critical point. His 854 machines at the $8,500 bond cap would only total about $7.259 million. But Chirico's proposal was for 8.1 million for the machines and an additional $1.081 million for outstanding referral fees.
So right there here was asking for more than the official cap allowed.
[00:01:56] Speaker A: Oh no. Really? So he was directly circumventing the very rules that were supposed to protect the bondholders, like his own fund. How did he manage to pull that off?
[00:02:06] 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 seemed compliant at $7.259 million.
[00:02:23] Speaker A: Okay, that sounds like it follows the rules superficially, but here's the kicker.
[00:02:27] Speaker B: He also insisted on being given an undisclosed seller's note for an additional $1.935 million. This note would bring his total payout back up to that $9.194 million 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.
[00:02:58] Speaker A: 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 said sounds like a direct betrayal.
[00:03:14] Speaker B: It absolutely was. And despite his insistence that the note wouldn't be paid from bond proceeds, Chirico was then paid $7.259 million directly 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.
[00:03:42] Speaker A: 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 352Fund Investors?
[00:04:01] Speaker B: Of course not. Kiriko deliberately omitted any mention of this conflicted transaction from both Leucadia Asset management and the 352 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.
[00:04:42] Speaker A: 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.
[00:05:03] Speaker B: Indeed, the $1.9 million seller's note was, in essence, an end run around the maximum 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.
[00:05:26] Speaker A: So even after he got his initial millions, Water Station was still obligated to pay him more, which would further strain their already dwindling handling resources.
Resources that I might add, were supposed to be securing the bondholders investments. Exactly. 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 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.
[00:06:31] 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 laid out how Jordan Chirico maneuvered to cash out his personal investment even as his fund was pouring millions into Water Station's bonds. You'd think that at some point, the truth about Water Station's actual operations, or lack thereof, would have to come out, right?
[00:07:13] Speaker A: One would certainly hope so, Nick. I mean, you can only pretend so many machines exist for so long, but before someone actually goes looking for them, this whole thing just feels like a house of cards waiting to tumble.
[00:07:29] Speaker B: And tumble it did.
We're now moving into mid 2023. And the company responsible for managing the bond collateral for Water Station, Remember, these are the supposed water vending machines that were securing the bonds. They started sending out some alarming notifications.
[00:07:48] Speaker A: Alarming? What did they find?
[00:07:50] Speaker B: Well, they notified both Ryan Ware and Jordan Chirico that they couldn't locate a significant number of water machines that were supposedly collateral for the Water Station bonds. Specifically, more than 3, 300 bond collateral. Water machines didn't appear to be generating any revenue.
[00:08:11] Speaker A: Wow, that's surprising. 3,300 missing machines.
How do you just lose that many machines? That's a huge red flag, if not a screaming siren.
[00:08:22] Speaker B: It absolutely is. By this point, Ware had purportedly sold approximately 10,593 water machines that were supposed to be collateral for those bonds. So more than a third of the supposed collateral was unaccounted for.
[00:08:40] Speaker A: Oh, my goodness.
So the bond collateral manager, to verify, decided to do a physical survey. I'd imagine that's standard procedure when things go sideways.
[00:08:52] Speaker B: Precisely. The bond collateral manager arranged for a survey of physical locations where these water machines were supposed to be. And the results were, frankly, devastating.
Out of 164 visited locations, 163 had no water machines on site.
[00:09:13] Speaker A: No, wait, hold on. Are you saying that they only found one machine out of 164 locations? That's almost zero. That's not just missing. That's practically non existent. Exactly. 163 out of 164 visited locations had no water machines at all. Think about that for a moment. This wasn't a few here or there. This was systemic. And how did Ryan Ware explain this massive discrepancy? He Must have had some excuse for thousands of machines just vanishing.
[00:09:47] Speaker B: Ryan Ware, to put it mildly, struggled to explain the more than 3,000 missing water machines that were supposed to have been purchased with the bond proceeds through the remainder of 2023. He provided what the indictment calls a series of excuses and misleading answers.
[00:10:06] Speaker A: I can only imagine. But here's my question, Nick. Jordan Chirico knew all of this, right? The bond collateral manager told both Ware and Chirico. So what did Chirico do once he had this irrefutable evidence of fraud?
[00:10:21] Speaker B: This is where Chirico's actions become even more egregious. Despite this mounting evidence that the bonds were severely under collateralized and that Ryan Ware had clearly spent millions of dollars of bond proceeds improperly. Jordan Chirico did not notify the 352 fund investors or Leucadia Asset Management.
[00:10:45] Speaker A: He didn't tell his firm. He didn't tell the people whose money he was managing. Money that was now clearly at risk. That's just.
That's crazy. But very scary scary at the same time. He had a fiduciary duty.
[00:11:00] Speaker B: Absolutely. It's a blatant violation of his duties. But it gets worse.
While all of this was unfolding, Chirico continued to collect hundreds of thousands of dollars from Water Station as a creditor of the company.
[00:11:15] Speaker A: He was still collecting personal payments while the company was unraveling and the fund he managed was exposed to massive losses.
Unbelievable.
[00:11:24] Speaker B: Not only was Chirico owed money on that undisclosed seller's note we discussed earlier, but he also made an additional undisclosed loan to water Station in May 2023.
This loan was then repaid in June 2023 with a 14 interest.
[00:11:41] Speaker A: Oh no. Really?
So he was loaning them money just to get paid back with interest? Essentially taking more money out of a company that was already filled. Failing money that was supposed to be securing his fund's investment.
[00:11:56] Speaker B: And then in September 2023, even after learning about the extent of the missing water machines, chirico loaned another a $500,000 to wear. And guess what? He did not disclose this loan either to Leucadia Asset Management or to the investors in the 352ft fund.
[00:12:18] Speaker A: So he kept making personal loans to Ware, which were getting repaid. All while keeping his firm and investors completely in the dark about the true state of Water Station.
This isn't just concealment. It sounds like active collusion.
[00:12:36] Speaker B: It certainly appears that way. The indictment states that Chirico, notwithstanding his fiduciary duties to the 352Fund and its affiliates colluded with Ryan Ware to prioritize repayments to Chirico over payments to Ware's other creditors, including the water station bondholders.
[00:12:59] Speaker A: He actually colluded to get his own money first before the bondholders. That's a direct betrayal of the fund he managed.
[00:13:06] Speaker B: Precisely. For example, in October 2023, after learning that where was expecting to receive over $400,000 in incoming funds, Chirico told him that he wanted a payment to my wife and I of 100,000 to get us started.
[00:13:25] Speaker A: A hundred thousand just to get them started. That's quite a start.
[00:13:29] Speaker B: And he specified that the remaining balance should be paid to Chirico's preferred list of joint venture partners, who naturally were his friends and family who were also owed money.
[00:13:42] Speaker A: So he was not only getting his own money back, but also ensuring his friends and family were prioritized. It's like he was running his own personal repayment scheme within the larger fraud.
[00:13:53] Speaker B: Exactly. He even told Ware that once they settle up in full on the 450,000 balance you owe me, referring to the previous loans, he'd be willing to do another short term loan to ensure his preferred list got their next payments for October.
He then assured Ware that repaying Chirico and his preferred partners rather than bondholders would be fine because Ware would have plenty of cash to make the bond payment with money from a third party lender.
[00:14:30] Speaker A: So he was pushing Ware to get a new loan, essentially to pay him and his inner circle to all while knowing that the bondholders were being shafted. This just keeps getting more tangled.
[00:14:41] Speaker B: And consistent with Chirico's demands, Ware transferred $450,000 to Curico in October 2023.
Once again, Kiriko did not disclose these repayments or the new loan to Leucadia Asset management or the 352 fund investors.
[00:15:02] Speaker A: Wow. It's one thing to be negligent, but this is active participation in deceit. He was essentially helping Ware keep the fraud going, all to protect his own personal financial interests.
[00:15:16] Speaker B: And it goes further.
In January 2024, after all these discoveries and his own self serving repayments, Jordan Chirico had a call with another water station joint venture investor.
During this call, both Chirico and the investor discussed the thousands of missing water machines and the severe under collateralization of the water station bonds.
[00:15:44] Speaker A: So at this point, Chirico is fully aware of the scale of the deception. The investors complaints confirmed it.
[00:15:50] Speaker B: Yes. Chirico even noted that thousands of the devices identified as bond collateral or were in fact traditional Vending machines, not water machines.
This is something Ryan Ware admitted to earlier, and now Chirico is acknowledging it, too.
[00:16:08] Speaker A: And then what happened on that call? Did they finally expose Ware?
[00:16:12] Speaker B: Chirico then added Ryan Ware to the call and confronted him about the fact that There were only 2,342 water machines in the field.
He directly questioned Warehouse about what happened to the money from investors. And Ware admitted it.
[00:16:27] Speaker A: He admitted it. What did he say?
[00:16:29] Speaker B: Ware admitted that he improperly used bond proceeds to instead buy traditional vending machines and real estate. He further admitted that it would be a challenge to deliver the water machines he claimed he had purchased and agreed that he had bought vending machines instead of water machines.
[00:16:50] Speaker A: Oh, my goodness. So right there, with Chirico present, Ware confessed to the fraud. He laid it all out.
[00:16:56] Speaker B: That's right. And with Chirico present, the other investor on the call then told Ware that he sold $110 million of stuff that does not exist, that this was the largest franchise fraud case in the history of the United States, and that he was going to jail.
[00:17:17] Speaker A: And this was all with Jordan Chirico listening. You'd think that would be the final straw. The point where he rushes to disclose everything to his firm and his investors.
[00:17:28] Speaker B: You'd certainly think so. But Chirico, despite hearing Ware's admission of a massive fraud and the investor's stark assessment, did not tell Leucadia Asset management or the 352 fund anything about how Ware had perpetrated this fraud.
He continued his concealment. So, sue, we've laid out how Jordan Chirico maneuvered to cash out his personal investment even as his fund was pouring millions into Water Station's bonds. You'd think that at some point the truth about Water Station's actual operations, or lack thereof, would have to come out, right?
[00:18:10] Speaker A: One would certainly hope so, Nick. I mean, you can only pretend so many machines exist for so long before someone actually goes looking for them. This whole thing just feels like a house of cards waiting to tumble.
[00:18:23] Speaker B: And tumble it did.
We're now moving into mid 2023.
And the company responsible for managing the bond collateral for Water Station.
Remember, these are the supposed water vending machines that were securing the bonds.
They started sending out some alarming notifications.
[00:18:43] Speaker A: Alarming? What did they find?
[00:18:45] Speaker B: Well, they notified both Ryan Ware and Jordan Chirico that they couldn't locate a significant number of water machines that were supposedly collateral for the Water Station bonds. Specifically, more than 3,300 bond collateral. Water machines didn't appear to be Generating any revenue.
[00:19:07] Speaker A: Wow, that's surprising. 3,300 missing machines. How do you just lose that many machines? That's a huge red flag, if not a screaming siren.
[00:19:16] Speaker B: It absolutely is.
By this point, Ware had purportedly sold approximately 10,593 water machines that were supposed to be collateral for those bonds. So more than a third of the supposed collateral was unaccounted for.
[00:19:35] Speaker A: Oh, my goodness. So the bond collateral manager, to verify, decided to do a physical survey. I'd imagine that's standard procedure when things go sideways. Precisely. The bond collateral manager arranged for a survey of physical locations where these water machines were supposed to be. And the results were, frankly, devastating.
Out of 164 visited locations, 163 had no water machines on site. No, wait, hold on. Are you saying that they only found one machine out of 164 locations? That's almost zero. That's not just missing. That's practically non existent.
[00:20:20] Speaker B: Exactly. 163 out of 164 visited locations had no water machines at all. Think about that for a moment. This wasn't a few here or there. This was systemic.
[00:20:34] Speaker A: And how did Ryan Ware explain this massive discrepancy? He must have had some excuse for thousands of machines just vanishing.
[00:20:43] Speaker B: Ryan Ware, to put it mildly, struggled to explain the more than 3,000 missing water machines that were supposed to have been purchased with the bond proceeds through the remainder of 2023. He provided what the indictment calls a series of excuses and misleading answers.
[00:21:05] Speaker A: I can only imagine. But here's my question, Nick. Jordan Chirico knew all of this, right? The bond collateral manager told both Ware and Chirico. So what did Chirico do once he had this irrefutable evidence of frank fraud?
[00:21:19] Speaker B: This is where Chirico's actions become even more egregious.
Despite this mounting evidence that the bonds were severely under collateralized and that Ryan Ware had clearly spent millions of dollars of bond proceeds improperly.
Jordan Chirico did not notify the 352 fund investors or Leucadia Asset Management.
[00:21:43] Speaker A: He didn't tell his firm. He didn't tell the people whose money he was managing. Money that was now clearly at risk.
That's just.
That's crazy. But very scary at the same time. He had a fiduciary duty.
[00:21:58] Speaker B: Absolutely. It's a blatant violation of his duties. But it gets worse. While all of this was unfolding, Chirico continued to collect hundreds of thousands of dollars from Water Station. As a creditor of the company, he.
[00:22:11] Speaker A: Was still collecting Personal payments while the company was unraveling and the fund he managed was exposed to massive losses. Unbelievable.
[00:22:20] Speaker B: Not only was Chirico owed money on that undisclosed seller's note we discussed earlier, but he also made an additional undisclosed loan to water Station in May 2023.
This loan was then repaid in June 2023 with a 14% interest.
[00:22:39] Speaker A: Oh no. Really?
So he was loaning them money just to get paid back with interest.
Essentially taking more money out of a company that was already failing. Money that was supposed to be securing his funds investment.
[00:22:53] Speaker B: And then in September 2023, even after learning about the extent of the missing water machines, chirico loaned another $500,000 to Ware. And guess what? He did not disclose this loan either to Leucadia Asset Management or to the investors in the 352 fund.
[00:23:17] Speaker A: So he kept making personal loans to Ware which were getting repaid. All while keeping his firm and investors completely in the dark about the true statement state of Water Station.
This isn't just concealment. It sounds like active collusion.
[00:23:34] Speaker B: It certainly appears that way. The indictment states that Chirico, notwithstanding his fiduciary duties to the 352Fund and its affiliates, colluded with Ryan Ware to prioritize repayments to Chirico over payments to Ware's other creditors, including the Water Station bondholder.
[00:23:54] Speaker A: He actually colluded to get his own money first before the bondholders. That's a direct betrayal of the fund he managed.
[00:24:01] Speaker B: Precisely. For example, in October 2023, after learning that Ware was expecting to receive over $400,000 in incoming funds, Chirico told him that he wanted a payment to my wife and I of 100,000 to get us started.
[00:24:20] Speaker A: A hundred thousand just to get them started. That's quite a start.
[00:24:24] Speaker B: And he specified that the remaining balance should be paid to Chirico's preferred list of joint venture partners, who naturally were his friends and family who were also owed money.
[00:24:38] Speaker A: So he was not only getting his own money back, but also ensuring his friends and family were prioritized. It's like he was running his own personal, personal repayment scheme within the larger fraud.
[00:24:50] Speaker B: Exactly. He even told Ware that once they settle up in full on the 450,000 balance you owe me, referring to the previous loans, he'd be willing to do another short term loan to ensure his preferred list got their next payments for October.
He then assured Ware that repaying Chirico and his preferred partners rather than bondholders would be fined because Ware would have plenty of cash to make the bond Payment with money from a third party lender.
[00:25:25] Speaker A: So he was pushing Ware to get a new loan, essentially to pay him and his inner circle, all while knowing that the bondholders were being shafted. This just keeps getting more tangled.
[00:25:36] Speaker B: And consistent with Chirico's demands, Ware transferred $450,000 to Chirico in October 2023.
Once again, Chirico did not disclose these repayments or the new loan to Leucadia Asset management or the 352 fund investors.
[00:25:55] Speaker A: Wow. It's one thing to be negligent, but this is active participation in deceit. He was essentially helping wear keep the fraud going, all to protect his own personal financial interests.
[00:26:08] Speaker B: And it goes further.
In January 2024, after all these discoveries and his own self serving repayments, Jordan Chirico had a call with another water station joint venture investor.
During this call, both Chirico and the investor discussed the thousands of missing water machines and the severe under collateralization of the water station bonds.
[00:26:33] Speaker A: So at this point, Chirico is fully aware of the scale of the deception. The investor's complaints confirmed it.
[00:26:40] Speaker B: Yes. Chirico even noted that thousands of the devices identified as bond collateral were in fact traditional vending machines, not water machines.
This is something Ryan Ware admitted to earlier, and now Chirico is acknowledging it too.
[00:26:56] Speaker A: And then what happened on that call? Did they finally expand Expose where Jericho.
[00:27:00] Speaker B: Then added Ryan Ware to the call and confronted him about the fact that There were only 2,342 water machines in the field. He directly questioned Ware about what happened to the money from investors. And Ware admitted it.
[00:27:13] Speaker A: He admitted it. What did he say?
[00:27:15] Speaker B: Ware admitted that he improperly used bond proceeds to instead buy traditional vending machines and real estate.
He further admitted that it would be a challenge to deliver the water machines he claimed he had purchased and agreed that he had bought vending machines instead of water machines.
[00:27:36] Speaker A: Oh my goodness. So right there with Chirico present, Ware confessed to the fraud. He laid it all out.
[00:27:41] Speaker B: That's right. And with Chirico present, the other investor on the call then told Ware that he sold $110 million of stuff that does not exist, that this was the largest franchise fraud case in the history of the United States, and that he was going to jail.
[00:28:01] Speaker A: And this was all with Jordan Chirico listening. You'd think that would be the final straw. The point where he rushes to disclose everything to his firm and his investors.
[00:28:11] Speaker B: You'd certainly think so.
But Chirico, despite hearing Ware's admission of a massive frame fraud and the Investor's stark assessment did not tell Lucadia Asset management or the 352 fund anything about how Ware had perpetrated this fraud.
He continued his concealment. So sue.
Despite all of that, despite hearing Ware admit to the fraud, despite knowing the bonds were severely under collateralized, Jordan Chirico's actions actually took a shocking turn.
[00:28:47] Speaker A: A shocking turn? How could it get more shocking than what we just heard? He already knew everything and kept it quiet. What else could he possibly do?
[00:28:57] Speaker B: Well, he pressed forward and committed the 352 fund to purchase additional newly issued Water Station bonds. No.
[00:29:05] Speaker A: You're telling me after all that he doubled down after knowing it was a massive fraud, he pushed his fund to invest more money.
That's just. I mean, that's beyond reckless. That's criminal.
[00:29:19] Speaker B: It is honor. About February 2, 2024, Water Station issued an additional $15 million of Class A notes and another $4 million of Class B notes. And guess who purchased those?
The 352 fund and its affiliates.
That's another $19 million poured into a known fraudulent scheme.
[00:29:42] Speaker A: Oh, my goodness. Why? What was the motivation here? He had to know he was sending good money after bad, risking his investor's capital even more.
[00:29:51] Speaker B: In authorizing that investment, Chirico continued to conceal and deliberately did not disclose to Leucadia Asset management or the 352 fund investors that the existing bonds were under collateralized.
He didn't tell them that Ware had misrepresented thousands of machines or that Ware had misused tens of millions of dollars from the bond offering.
And critically, he didn't disclose that Ware still owed chirico more than $1 million.
[00:30:23] Speaker A: He just kept digging the hole deeper for his fund, all while keeping them in the dark.
It's a complete and utter betrayal of trust. And he was still owed money, you said? Was this related to getting his personal money back?
[00:30:37] Speaker B: Absolutely. In fact, just a few days after this new $19 million sale of water Station bonds, Ware used proceeds from that new sale to make a significant repayment. On the seller's note to Chirico.
[00:30:51] Speaker A: Wait, hold on. Are you saying that the money the 352 fund just invested, money that was supposed to secure their previous, was immediately used by Ware to pay Chirico back on his personal debt. That's infuriating. That's just a direct siphoning of investor funds into his own pocket using the very mechanism he was supposed to be protecting.
[00:31:20] Speaker B: That's exactly what happened. It highlights the depth of his self interest and conflict.
The fund's money was essentially recycled to cover Chirico's personal financial interests, despite the explicit knowledge of the fraud.
[00:31:36] Speaker A: So not only did he fail to disclose the previous issues and his own conflicts, but he orchestrated a new investment that directly benefited him even as the company was crumbling. This is just a masterclass in deception, but a very dark one.
[00:31:54] Speaker B: And the deception continued.
On or about February 14, 2024, the parties amended the bond agreement to authorize the release of additional money from a bond account to Water Station.
And in this amended agreement, Water Station did make a disclosure, but it was materially misleading.
[00:32:18] Speaker A: Misleading how? What did they say?
[00:32:20] Speaker B: The disclosure stated that the bond collateral contains a significant portion of traditional vending machines rather than water vending machines.
And certain of the report data and characteristics of such machines contained inaccuracies.
[00:32:37] Speaker A: So they basically admitted that some of the collateral was wrong, but they downplayed it significantly. Like, oops, a few machines might be snack machines instead of water machines.
[00:32:48] Speaker B: Exactly.
It was a partial admission designed to look like transparency without actually revealing the true scale of the fraud. It made no mention of Ware's earlier admission to Chirico that thousands of water machines that were supposed to be collateral simply did not exist.
[00:33:07] Speaker A: So they completely omitted the fact that Ware had admitted to buying traditional vending machines and real estate with bond proceeds instead of the water machines, and that he'd misappropriated tens of millions of dollars.
[00:33:21] Speaker B: Correct. This partial, misleading disclosure came only after the 352 fund and its affiliate had purchased an additional $19 million of water station bonds. And after some of those proceeds were already used to make that significant repayment on Chirico's seller's note.
[00:33:43] Speaker A: Unbelievable. So they secured more money from the fund, used some of it to pay Chirico, and then offered a watered down, misleading disclosure. It's like they were trying to put a tiny band aid on a gaping wound, knowing full well it was fatal.
[00:34:00] Speaker B: It certainly paints a picture of a desperate attempt to maintain the illusion even as the walls were closing in. And to ensure that Chirico continued to benefit personally from the scheme for as long as possible. And despite all those last ditch efforts and misleading disclosures, the end was truly inevitable. Sue? Water Station was unable to keep up with its payments to bondholders.
[00:34:23] Speaker A: Oh no. Really?
So all that additional money Chiriko funneled in from the 352 fund and all the attempts to obscure the truth, it still wasn't enough to keep the charade going?
[00:34:39] Speaker B: Not at all.
Within months of the 352 fund's very last investment Water Station simply couldn't pay its bondholders.
They were forced to draw from reserve accounts just to make ends meet for a short while. But even that wasn't sustainable.
[00:34:58] Speaker A: So the company was essentially running on fumes, using any last bit of cash they could scrape together.
That's crazy, but very scary at the same time.
[00:35:08] Speaker B: Exactly. The house of cards finally collapsed in June 2024. Waters Station failed to make its required interest payment to the bondholders. And just two months later, in August 2024, the company was officially forced into involuntary bankruptcy.
[00:35:27] Speaker A: Wow. So after all those promises of lucrative returns and passive income, and it all just imploded. What happened to Ryan Ware after that? Did he make any more payments?
[00:35:39] Speaker B: No, he never made another payment to the bondholders or any other investors.
To this day, it's reported that more than $115 million of outstanding principal on the bonds remained unpaid from his side.
[00:35:51] Speaker A: $115 million unpaid. That's a staggering amount of money. And what about the original joint venture investors, the retail investors, the military veterans we talked about at the beginning? Did they just lose everything, too?
[00:36:06] Speaker B: Unfortunately, yes. Joint venture investors have filed tens of millions of dollars worth of claims in the bankruptcy proceeding.
So many people's life savings retirement funds completely wiped out by this scheme.
[00:36:21] Speaker A: Oh, my goodness. That's just heartbreaking to hear. And for the 352 fund, the one Jordan Chirico managed with what was their final tally in losses? They poured in so much, especially at the end.
[00:36:36] Speaker B: The 352 fund ended up holding a staggering 106.925 million in water Station bonds. For all those bonds, they had paid over 92 million.
And guess what? They haven't received a single principal payment on any of it.
[00:36:56] Speaker A: So they lost almost all of the principal they invested over $92 million just gone. And this is the fund that Chirico was managing, the one he continuously misled and pushed to invest more, even when he knew it was a total fraud.
[00:37:14] Speaker B: Precisely. It's a direct consequence of his actions, from concealing his personal interests to orchestrating additional investments. And despite overwhelming evidence of fraud, the materially misleading disclosures they made in the very final stages, suggesting only inaccuracies in collateral, just add insult to injury. For these investors, who were kept in the dark about the true extent of.
[00:37:41] Speaker A: The deception, it's just unbelievable how many layers of deceit there were, from Ryan Ware's initial Ponzi scheme to Jordan Chirico's complete disregard for his fiduciary duties.
The sheer scale of it, and the number of people who lost so much. It's just mind boggling.
[00:37:58] Speaker B: It truly is.
This case serves as a stark reminder of how complex and intertwined financial frauds can become, Especially when individuals in positions of trust abuse their power for personal gain.
The ripple effect of these actions is devastating for countless lives. It truly is. This case serves as a stark reminder of how complex and intertwined financial frauds can become, Especially when individuals in positions of trust abuse their power for personal gain. The ripple effect of these actions is devastating.
[00:38:40] Speaker A: So, Nick, after all this unraveling, what were the legal ramifications for both Ryan Ware and Jordan Chirico? I mean, they both seem deeply involved in different aspects of this massive deception.
[00:38:53] Speaker B: That's a great question, Sue. Given the scale of the fraud, both Ryan Ware and Jordan Chirico face significant federal charges. For Ryan Ware, the primary charges outlined in the indictment were count one, which was securities fraud, and count two for wire fraud.
[00:39:12] Speaker A: Securities fraud and wire fraud. Hmm. Can you break down what those mean in the context of what wear did?
[00:39:18] Speaker B: Absolutely. The securities fraud charge under federal regulations, essentially alleges that Ryan Ware employed a scheme to defraud, made untrue statements, and omitted material facts necessary to avoid misleading investors. This covers his systematic deception about water stations, profitability, the existence of machines, and the misappropriation of of investor funds.
It's all about how he manipulated the investment process.
[00:39:51] Speaker A: So basically, everything we've talked about, the fake machines, the Ponzi scheme, the inflated revenue numbers, that all falls under securities fraud because he was selling what were essentially unregistered securities.
[00:40:06] Speaker B: Precisely. And then the wire fraud charge comes into play, because between approximately 2016 and August 2024, Ware knowingly used interstate wire communications. Think emails, phone calls, online transactions. For the purpose of executing his scheme to obtain money and property through false pretenses and promises.
Every time he solicited an investor or conducted a transaction related to the fraud across state lines, he was committing wire fraud.
[00:40:42] Speaker A: Ah, I see. So it's not just the fraud itself, but the act of using modern communication methods to carry it out. That adds another layer of legal exposure. It's like the digital footprint of the deception. Now, what about Jordan Chirico? What were his specific charges?
[00:41:03] Speaker B: Jordan Chirico's situation was a bit different. Reflecting his specific role, he was charged with count one, investment advisor fraud, and count two, securities fraud.
[00:41:15] Speaker A: Investment advisor fraud. That makes sense given his position at Jefferies Financial Group. What did that entail?
[00:41:22] Speaker B: His investment advisor fraud charge alleges that from 2020 through June 2024, Chirico as an investment advisor, willfully and knowingly engaged in a scheme to defraud his client, the 352 fund and prospective clients. This includes employing deceptive devices, engaging in fraudulent business practices, and specifically concealing and mischaracterizing his significant private financial interests in Water Station and Ryan Ware's activities.
[00:41:59] Speaker A: So he was actively hiding his conflicts of interest while directing his fund to invest in in the very company that was paying him personally. That's a clear breach of trust. And then he also faced securities fraud, just like.
[00:42:14] Speaker B: That's right. Chirico's securities fraud charge focused on his willful and knowing use of interstate commerce and national securities exchanges to engage in manipulative and deceptive devices in connection with the purchase and sale of a security.
This specifically points to how he deliberately failed to disclose material information regarding Water Station's bonds and financial condition, which in turn caused the 352 fund and its affiliates to engage in fraudulent transactions in Water Station bonds, violating his fiduciary duties.
[00:42:51] Speaker A: Wow. So the charges against both of them really highlight their individual deceptions, but they're so intertwined, we're creating the fake assets and misleading investors and. And Chirico facilitating the investment of large sums into that fraud while covering up his own personal gains. It's a complete picture of systematic financial catastrophe.
[00:43:17] Speaker B: It truly is, Su. Their individual deceptions, while distinct in their application, perfectly complemented each other to create this widespread financial disaster.
Ryan Ware built the fraudulent structure and Jordan Chirico from a position of trust, actively funneled more and more money into it while profiting personally. It's a prime example of how different layers of deceit can culminate in devastating losses for unsuspecting investors. It truly is, Sue. And as we wrap up this incredibly intricate case, it really drives home some vital lessons for anyone navigating the investment world.
This wasn't just a simple con. It was a labyrinthine scam that exploited trust and a desire for passive income.
[00:44:08] Speaker A: That's so true, Nick. I mean, thinking back to everything, what are some of the absolute critical red flags that listeners should be looking out for if they ever encounter an investment opportunity like Water Station?
Because it seemed so plausible on the surface.
[00:44:28] Speaker B: That's a great point, Sue. The first and often most glaring red flag is the promise of unusually high, consistent returns with little to no risk.
Ryan Ware promised lucrative passive income. Remember? If it sounds too good to be true, it almost always is.
[00:44:47] Speaker A: Oh, definitely. And the whole water vending machine angle made it sound innovative. But that passive income promise, especially with the high percentage returns. Should have been a screaming siren.
[00:45:01] Speaker B: Exactly. Another major red flag was the lack of verifiable assets. Ware claimed thousands of machines, but they simply didn't exist or weren't generating the promised revenue. Always demand independent verification of the underlying assets. Don't just take the promoter's word for it.
[00:45:21] Speaker A: That's crazy, but very scary at the same time. And the shift from revenue sharing to a flat fee, that was another big one, right? It seemed like a way to obscure the actual performance.
[00:45:33] Speaker B: Absolutely.
Any sudden, unexplained changes to the investment structure or payment terms, especially those that make it harder to track actual performance, should set off alarms.
It's often a sign that things are not as they seem and the perpetrator is trying to hide something.
[00:45:54] Speaker A: So, beyond spotting these red flags, what's the paramount importance of due diligence for investors? How do you even begin to do that for something this complex?
[00:46:05] Speaker B: Due diligence is absolutely critical for individual investors. This means doing your homework beyond just the pitch.
It involves independently researching the company, understanding the business model, not just what's presented, but how it actually makes money.
[00:46:25] Speaker A: Right. Not just the marketing fluff.
[00:46:27] Speaker B: Precisely.
If Ryan Ware's claims had been independently verified early on, it would have quickly become apparent that he wasn't manufacturing or deploying nearly enough machines to support the promised returns.
You need to scrutinize financial statements, and if they're not provided or are opaque, that's a huge warning sign.
Consult with independent financial advisors or legal professionals who have no vested interest in the scheme. They can help identify risks you might miss.
[00:47:04] Speaker A: And speaking of independent financial advisors, this case also really hammered home the necessity of transparency from financial advisors, didn't it? Jordan Chirico's actions were a complete betrayal of his fiduciary duties.
[00:47:20] Speaker B: Yes, sue, that's perhaps one of the most insidious aspects of this scam. Jordan Chirico's deliberate concealment of his personal financial interests, his undisclosed loans to Ware, and his efforts to prioritize his own repayments over those of the 352 funds. Bondholders are a classic example of a massive conflict of interest.
[00:47:43] Speaker A: I mean, he was literally directing his fund to buy bonds from a company that was paying him millions personally, and he knew it was a fraud. It's just unbelievable.
[00:47:52] Speaker B: Oh, no, really?
It highlights that investors must demand for full transparency from their financial advisors.
Ask about any personal investments they have in recommended products, any referral fees they might receive, or any other financial relationships that could create a conflict. A truly ethical advisor will disclose these things proactively. If they're evasive, it's a massive red.
[00:48:20] Speaker A: Flag that makes perfect sense. And the consequences in this case were just devastating. Over 200 million lost for Ware's investors and the 352 fund losing over 92 million of its principal. It's a sobering reminder of how quickly financial deception can unravel lives.
[00:48:41] Speaker B: It absolutely is.
The severe consequences of financial deception cannot be overstated.
It leads to not just monetary losses, but can wipe out life savings, destroy trust, and cause immense emotional distress.
The legal charges faced by both Ware and Chirico, securities fraud and wire fraud, reflect the serious nature of these crimes. But that doesn't bring back the lost money for the victims.
[00:49:11] Speaker A: So for our listeners, what final piece of advice would you give them to protect themselves from similar complex scams in the future?
[00:49:19] Speaker B: My key advice is to maintain a healthy skepticism, especially when faced with promises that seem too good to be true.
Always seek independent, unbiased advice.
Don't let yourself be pressured into making quick investment decisions. Take your time, ask tough questions and verify everything.
If a financial professional tries to rush you or avoids answering direct questions, walk away. And if you suspect something is off, report it to the proper authorities. Your vigilance can not only protect you, but potentially prevent others from falling victim.
[00:49:59] Speaker A: Sound advice, Nick. Stay safe, stay informed, stay alert, and we'll catch you next time. Bye for now.
