The brothers behind the troubled auto-parts supplier, First Brands Group LLC — which fell into bankruptcy last fall, touching off widespread concern about lurking credit risks — have now been accused of engaging in a massive fraud scheme that targeted their lenders and finance providers.
The company’s former CEO Patrick James, and his brother Edward who was also an executive at the company, are facing an 18-count indictment that includes an array of fraud, conspiracy and money laundering charges in connection with the company’s failure.
According to the indictment, which was unsealed Thursday in New York, the pair orchestrated a series of frauds at the company, which reported US$9 billion in liabilities and just US$12 million in cash when it filed for bankruptcy last September.
Specifically, it’s alleged that starting in 2018, the pair engaged in, “multiple fraud schemes to fake and falsely inflate invoices for accounts receivable and payable; double- and triple-pledge loan collateral; falsify corporate financial statements; and conceal substantial liabilities from lenders.”
Among other things, the indictment alleged that they misled financing firms that purchased the company’s customer receivables, which didn’t exist, to obtain billions in invoice-based financing. It’s alleged that they defrauded lenders by disseminating materially false and misleading financial information and made misleading representations of other firms in an effort to refinance the company’s debt or sell it when it was on the verge of bankruptcy.
The allegations have not been proven, and they are presumed to be innocent.
Alongside the indictment charging the James brothers, U.S. authorities unsealed a guilty plea from another former First Brands executive, Peter Andrew Brumbergs, in connection with his role in the scheme.
He was charged with eight counts, including wire fraud, bank fraud and conspiracy charges, and is cooperating with the government.
“The James brothers obtained billions for First Brands — and millions for themselves — by presenting their lenders with the impression of a successful, growing international business,” said Jay Clayton, U.S. attorney for the Southern District of New York, in a statement.
“The indictment and the guilty plea unsealed today describe a very different reality: a business run through fraud, fake documents and false financials,” he added.