Investors in an Everett-based water vending machine company claim they were bilked out $130 million in what their lawyers in a lawsuit filed last month call a Ponzi scheme.
WaterStation Technology, founded in 2013, advertised water-bottle filling stations that could be installed in “revenue-generating locations” such as grocery and convenience stores to prospective investors across the country. Founder Ryan Wear promised that once an investment was made, the company would handle installation and upkeep for a cut of the profit, according to documents filed in Snohomish County Superior Court.
Another WaterStation guarantee was that if an investor wasn’t satisfied, Wear told them, the company would return every cent they invested, according to court documents.
More than 60 Investors thought they were buying into a franchise from a business that sold $8,500 alkaline mineral water vending machines that generated enough revenue to return 12% to 20% of their investment back every year.
Attorneys accuse Wear of setting up the company as a Ponzi scheme, using new investors’ money to satisfy the revenue payments owed to older investors.
Dozens of investors allege revenue payments dried up in 2022. “Ever since, WaterStation has been actively misleading investors about the nature of the liquidity shortfall and has repeatedly sowed false hope about payments resuming to keep investors at bay,” attorneys for the investors said in court papers.
WaterStation touted 17,000 locations, a number investors now contend is fake.
“Based on our investigation, we believe about 90% of the revenue-generating locations listed by WaterStation didn’t exist,” said John Bender, a partner at Corr Cronin, who’s representing dozens of the investors.
Wear raised a substantial amount of the money by taking advantage of the small business lending system, according to the lawsuit. He and the company sourced financing from partner banks including UniBank and First Fed to secure more than 90 loans for WaterStation investors who put up their own money and assets as collateral.
Wear told investors that revenue payments from the vending machines would more than cover monthly loan payments.
“I think this is something you’re going to see more of coming out of the pandemic era,” Bender said. “Capital and financing was so easy to secure because of low interest rates. If you’re a bad actor that’s something you can exploit.”
WaterStation did not respond to a request for comment.
Another investor filed a lawsuit earlier this month in federal court. A Jefferies Financial Group hedge fund accused a former portfolio manager of committing fraud by directing the purchase of $15 million in bonds from WaterStation. The investor filed named Wear and WaterStation in the lawsuit as well.
Jordan Chirico, the former portfolio manager of Jefferies’ 352 Fund, had invested $7 million into WaterStation through his own company and arranged for members of his family and some friends to invest as well, according to the lawsuit. Chirico, the investor claimed, turned around and sold his interest in his company to another of Wear’s companies, Creative Technologies, for $7.2 million.
Lawyers accused Wear of selling the bonds in order to facilitate the Ponzi scheme and that all of the money was siphoned to the scheme’s participants, which included Chirico.
The Snohomish County lawsuit also accuses Wear of diverting money from investors to accrue a real estate portfolio of more than 30 properties across multiple states worth over $100 million. A hearing date is scheduled for Aug. 30.
