PORT ANGELES — The operator of a company linked to First Fed is facing federal civil and criminal charges of running Ponzi schemes that raised more than $275 million from 250 investors in a water machine vending company.
The Securities and Exchange Commission filed a complaint last Thursday in U.S. District Court for the Southern District of New York against Ryan Wear, owner of WaterStation Management and Creative Technologies, for violating securities laws. It is seeking civil penalties and barring Wear from serving as an officer or director at a public company.
Also on Thursday, the U.S. Department of Justice announced it was seeking a parallel criminal complaint against Wear, 49, of Everett, for one count of securities fraud and one count of wire fraud, each of which carries a maximum sentence of 20 years in prison.
A former portfolio manager was indicted by the SEC and DOJ for his involvement in the alleged Ponzi scheme, as well.
Although First Fed is not named in the federal indictments unsealed Thursday, it is already involved in litigation related to WaterStation.
A representative with First Fed’s public relations firm, the Fearey Agency, didn’t respond to a request for comment by press time.
In July, First Fed entered into a settlement with a group of investors who had originally sued Wear in Snohomish County Superior Court in April 2024 for defrauding them of $130 million.
The suit was expanded to include First Fed, consolidated as more plaintiffs signed on and eventually ended up in King County Superior Court.
First Fed agreed to pay the investors between $2.87 and $5.74 million but admitted no wrongdoing.
On June 10, the hedge fund 352 Capital filed a claim in King County Superior Court accusing First Fed of conspiring with Wear in running a Ponzi scheme. According to court documents, First Fed set up a financing program to extend loans to WaterStation investors, most of whom were backed by the U.S. Small Business Administration.
The suit alleges First Fed diverted funds from WaterStation bond proceeds to Wear and to itself in order to pay back loans it had made to Wear’s businesses and to pay off delinquent SBA loan holders.
325 Capital is seeking $106 million in the case, which is scheduled to go to trial next year.
Just weeks after 352 Capital filed its lawsuit, two key members of First Fed’s leadership team quit: President and Chief Executive Officer Matt Deines on July 12 and Chief Banking Officer Christopher Neros on July 2.
Their departures were among the risk factors First Fed reported in its second quarter SEC filing, which it said “may materially and adversely affect our prospects.”
“While we believe that our relationship with our remaining management team is good, we cannot guarantee that all members of our management team will remain with our organization,” it continued.
It noted the risks the 352 Capital case posed, as well.
“Even if we defend ourselves successfully,” the bank said, “the cost of litigation may be substantial, and public reports regarding claims made against us may cause damage to our reputation among existing and prospective clients or negatively impact the confidence of counterparties, rating agencies and stockholders, consequently negatively affecting our earnings.”
Being sued is a red flag for investors, said Burak Dolar, professor and director of the master of professional accounting program at Western Washington University’s College of Business and Economics.
”It’s not desirable because even if it’s a low-risk legal case, you don’t want to stick around and find out what will happen,” said Dolar, who didn’t address First Fed’s situation directly because he was not familiar with it.
“The typical response, maybe not for individual investors but for institutional investors, is to trade the stock.”
Small banks like First Fed are especially vulnerable when they find themselves in trouble, Dolar said.
“Community banks are not as financially strong like some Wall Street banks that are extremely diversified and have access to so many different sources of funds,” Dolar said.
They tend to be conservative in their investment strategies, he said, and don’t overextend themselves when it comes to managing risk.
“The strength at community banks is relationship banking, which is good for their business model,” Dolar said. “When you do business within your community, and especially in a small community, you’re going to have a pretty good pulse on the health of borrowers and the local economy.”
First Fed borrowers and depositors should not be worried about their accounts, however.
In a worst-case scenario with the failure of a bank, the FDIC facilitates the sale of its loans to another bank that must keep the same terms and conditions, Dolar said. FDIC deposit insurance also automatically protects up to $250,000 per depositor.
Wear pitched WaterStation Management to investors as a passive, turnkey operation that would earn them 12 percent to 20 percent annually through the purchase of water vending machines it would install and maintain.
The state Department of Financial Institution’s Division of Securities began an investigation of Wear, his businesses and some of his associates for misleading investors and violating the state’s securities laws in May.
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Reporter Paula Hunt can be reached by email at paula.hunt@peninsuladailynews.com.
