Indiana Pension Sues Jefferies Over 352 Capital, Alleging Self-Dealing Around Water Station

How the pitch became a lawsuit

Jefferies' asset manager courted the Indiana Public Retirement System hard, including hosting senior staff at its Midtown Manhattan offices. The ask was simple on paper: partner to "deploy capital alongside Jefferies" and help launch the hedge fund 352 Capital.

By early 2021, INPRS - the fund that provides pensions to educators, police, and other state workers - had put $100 million into a consumer asset-backed securities strategy and was 352's largest limited partner. The relationship later deteriorated, according to an INPRS complaint that was filed under seal last year and has been reviewed in unredacted form by Bloomberg News, and the pension contends the bank turned on its own client.

The filing says Jefferies came up almost $90 million short on a promise to put $200 million next to 352 via a separate account. It also alleges the bank moved its Water Station exposure into 352 at inflated prices and allowed the fund to keep sending cash to Water Station, while the bank collected millions in fees. The complaint says Leucadia, Jefferies' asset management unit, aimed to "misappropriate $100 million from INPRS via fraud, then execute related fraudulent schemes to enrich Jefferies' entities at INPRS' expense," and that Leucadia "was not investing alongside INPRS, but against it." Jefferies, through a spokesperson, declined to comment.

The Water Station thread

The dispute centers on Water Station, a water vending machine company. INPRS claims Leucadia's 2023 investor letters struck an optimistic tone even as 352 provided funding for Water Station-related debt.

According to the complaint, Leucadia's January 2024 investor update omitted mention of financial pressures connected to its investments. Shortly thereafter, Leucadia swapped its separate side investment for an ownership interest in the 352 fund, which the pension says enabled the sale of Water Station bonds to 352 at "fraud-inflated prices." The suit alleges, "Leucadia knew that Water Station Management was in dire financial straits and sought to offload its exposure onto INPRS and other 352 Fund investors."

The pension also says that following the shift, Leucadia's interest in the 352 strategy was $50 million - down from $112.5 million that had previously been held in a separate account. Concurrently, the complaint asserts, Leucadia Chief Operating Officer Matt Smith kept arranging additional purchases of Water Station bonds. 352 ultimately built a $107 million position, with INPRS holding a stake of more than 40 percent in the fund.

By the close of 2023, Water Station had failed to make interest payments, and it went under a few months after that. Leucadia then sued the company and founder Ryan Wear, attributing its participation to actions by portfolio manager Jordan Chirico. Attorneys for Chirico and Wear said they had no comment on the civil matter.

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Criminal cases, competing narratives, and a live court fight

Federal prosecutors indicted Chirico and Wear last year on fraud charges. Both deny wrongdoing. Prosecutors did not bring charges against Jefferies or Leucadia. After prosecutors brought charges against Chirico, his attorney described him as a "victim" of the alleged fraud scheme rather than "the villain."

Jefferies has said in a 2024 complaint that Chirico was a rogue manager who concealed his conduct from Leucadia and 352 investors. In moving to dismiss the INPRS suit, the bank told the court, "The Jefferies Defendants are victims of the fraudulent scheme INPRS alleges in the Complaint," pointing to the Justice Department investigation that resulted in indictments of Chirico and Wear. Jefferies also argued that INPRS leaned on those indictments while ignoring their "clear conclusion that the Jefferies Defendants were deceived by Chirico and suffered losses due to his wrongdoing."

INPRS rejects that account and is also suing Chirico, alleging Jefferies, Leucadia and their employees were "central figures in the conspiracy and fraudulent scheme." INPRS's attorneys, who filed the action in October 2025 in Indiana's Hamilton County Superior Court, said they had no comment. A judge denied Jefferies' motion to dismiss last week.

Oversight questions reach Jefferies' C-suite orbit

The complaint spotlights Leucadia COO Matt Smith's role. INPRS says he oversaw key functions, corresponded with the pension before and during its 352 investment, was a Jefferies managing director, sat on the bank's risk management committee, and reported to the chief financial officer, putting him close to CEO Rich Handler.

INPRS alleges Smith allowed repeated changes to Water Station bond indentures to give the company more breathing room and failed to flag the amendments. "Had Smith acted in accordance with his own fiduciary duties to INPRS, INPRS would have been alerted to the ongoing fraud," the complaint says. Smith did not respond to requests for comment. His BrokerCheck disclosure includes a statement that, "From the discovery and disclosure of Chirico's fraud, the firm and Matt Smith have worked transparently and cooperatively with INPRS to support 352 and INPRS."

The turmoil has surprised longtime watchers, given Jefferies' hard charging reputation and an asset arm built in an unconventional way by seeding or taking stakes in a collection of smaller funds. Investors and analysts are now questioning oversight, risk controls, and the unit's long term outlook. As Julie Hill, dean of the University of Wyoming College of Law, put it, "What is much harder to come back from are widespread and repeated allegations that you just didn't lack oversight but that you were knowingly complicit." Jefferies has also drawn scrutiny for Point Bonita Capital, a trade finance fund.

Why it matters for investors

In plain English: a major pension says its partner promised alignment, underdelivered on a co invest, shifted problem assets into the fund, and kept financing a borrower that later unraveled. Jefferies says it was duped by Chirico and points to the indictments of Jordan Chirico and Water Station founder Ryan Wear. The judge recently rejected Jefferies' attempt to have the lawsuit thrown out.

The bottom line: this is about governance and incentives when a platform seeds and co invests across niche strategies. If you own Jefferies or peers, watch disclosures, related party transactions, and how firms unwind troubled exposures as this case develops.

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