Federal prosecutors indicted the founder of First Brands and his brother on fraud charges on Thursday, accusing them of an elaborate scheme to deceive lenders at the now-bankrupt auto parts company that stretched back for the better part of a decade.
The indictment, filed in federal court in Manhattan, said the First Brands founder, Patrick James, and his brother Edward, a former top company executive at the company, “deliberately concealed massive amounts of debt” and flat-out lied to lenders who asked about it.
The brothers also cycled money through subsidiaries and shell companies they controlled to make it appear that First Brands had a larger business than it actually did; one such arrangement was described internally as a “round trip,” according to the indictment.
First Brands’ unraveling last fall captured the attention of the world of finance, partly because major firms such as BlackRock, Jefferies and UBS, the Swiss bank, had funneled the company money. After the auto-parts maker filed for bankruptcy, Mr. James was ousted over what First Brands said was his siphoning of company funds to pay for personal expenses such as a private chef, a personal trainer and an apartment.
The indictment said that the fraud at First Brands went as far back at 2018.
Started in 2013, First Brands was a poster child for what is known as invoice-financing, in which lenders provide money that is meant to be repaid when specific retailers send in checks for specific products. This is fairly common when done honestly, but First Brands would secretly pledge money from the same invoices to multiple lenders, prosecutors said, to the tune of $2.7 billion of fake accounts.
Scott Hartman, a lawyer for Patrick James, said the First Brands founder “is presumed innocent and denies these charges.”
“He built First Brands from nothing into a global industry leader and has always been devoted to the success of the company,” Mr. Hartman continued.
A lawyer for Edward James did not respond to a request for comment.
First Brands’ demise was one of two bankruptcies last year that raised questions about possible problems in the corporate credit markets. Last month, prosecutors announced criminal fraud charges against top executives of Tricolor Auto, a subprime auto lender that led to losses for its backers including JPMorgan Chase.
Rob Copeland is a finance reporter for The Times, writing about Wall Street and the banking industry.
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