Jefferies Seeks to Claw Back Ex-Fund Manager’s Pay in Fraud Suit
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(Bloomberg) -- A Jefferies Financial Group hedge fund is attempting to claw back millions in compensation from a former portfolio manager it claims poured more than $100 million in a fraudulent scheme.
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Jefferies’ 352 Capital on Monday filed a revised complaint against Jordan Chirico in Manhattan federal court, expanding on its allegations that, when he purchased bonds issued by WaterStation Management, he knew the Seattle-based water vending machine company was engaged in a fraud.
Calling Chirico a “faithless servant,” 352 also added a demand that he disgorge any compensation paid to him from September 2022 until his June 2024 termination. The fund said he was paid a total of around $5.3 million since he first joined 352 in May 2020.
The fund, which is part of Jefferies’ Leucadia Asset Management arm, first sued Chirico and others in July. Chirico moved to dismiss the original complaint earlier this month, arguing that 352 failed to show that he was aware of any wrongdoing at WaterStation and suggesting he himself was a victim.
Chirico didn’t immediately respond to a request for comment. He will have to file another motion if he wants to challenge the revised suit. Jefferies also didn’t respond to a request for comment.
Federal Investigation
According to both the original and revised complaints, WaterStation issued bonds that it claimed would be used to finance the purchase and operation of thousands of filtered water vending machines. The company allegedly falsified purchase records for these machines but actually directed proceeds from bond purchases mainly to pay or buy out “franchisees,” a group which 352 claims includes Chirico.
WaterStation and Chirico are also at the center of a Justice Department investigation. In a related civil lawsuit filed in New York state court between Chirico and 352 over legal fees, Chirico’s lawyers disclosed that he was “cooperating” with the Manhattan US attorney’s office and had participated in voluntary interviews.
WaterStation, its founder Ryan Wear and several others were sued by 352 as well. A Washington state court judge placed WaterStation into receivership in May and removed Wear as manager in August. Last week, US District Judge Valerie Caproni in Manhattan stayed 352’s suit as to WaterStation and two other entities, noting they were part of a federal bankruptcy proceeding in Texas.