First Brands Founder James Says Lenders to Blame for Bankruptcy

AI Summary4 min read

TL;DR

First Brands founder Patrick James blames predatory off-balance-sheet lenders for the company's bankruptcy, denying allegations of misappropriating hundreds of millions. He claims lenders like Onset Financial engaged in usurious practices, while lenders counter that James committed fraud through fake invoices and diverted funds.

Key Takeaways

•First Brands founder Patrick James argues predatory off-balance-sheet financing practices by lenders like Onset Financial contributed to the company's bankruptcy.
•James denies wrongdoing, claiming lenders charged 'onerous fees' and provided 'commercial payday loan'-like financing, while lenders allege he orchestrated financial fraud.
•Lenders accuse James of using fake invoices, double-pledged collateral, and diverting hundreds of millions to personal accounts, leading to a fraudulent transfer lawsuit.
•The case highlights conflicting narratives: James blames external factors and lender practices, while new management and lenders point to internal fraud as the collapse cause.

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Patrick JamesONSET FINANCIAL INCWall StreetInterest RatesDebtBOXAcquisitionsChief Executive OfficerHoustonFinanceFirst Brandsbankruptcypredatory lendingfraud allegations

First Brands founder Patrick James asked a judge to dismiss a lawsuit accusing him of misappropriating hundreds of millions of dollars, contending firms that provided his company with off balance-sheet financing engaged in “predatory” practices that helped tip the auto-parts supplier into bankruptcy.

Bottles of Fram full synthetic motor oil at an auto parts store in Provo, Utah.
Photographer: George Frey/Bloomberg

The claim by James, who has denied wrongdoing, is part of a broader defense made in a Monday court filing by his lawyers, who argue there’s not enough evidence to justify holding him solely responsible for the collapse of the company. First Brands was unable to withstand both a series of external factors including rising interest rates and tariffs, as well as the costs associated with its off balance-sheet debt, saying lenders “earned significant amounts of money from their relationships” with the company.

“These off-balance-sheet lenders’ predatory practices drilled the company in the weeks leading up to the chapter-11 filing,” James said in the filing. He described the financing as “usurious.”

James claimed that one of the lenders, Onset Financial Inc., “charged onerous fees,” and suggested the financing arrangement was more similar to a “commercial payday loan.” Onset has said in court papers that it leased back equipment and inventory it purchased from First Brands and is owed more than $2 billion.

A representative for First Brands declined to comment.

An Onset spokesperson said that the firm showed First Brands “extraordinary patience and flexibility” over several months with three forbearance agreements.

“The allegations of fraud by Mr. James and his entities are simply stunning, and Onset will continue to vigorously assert our claims and defend our position in this bankruptcy, as well as against Mr. James and his cohorts,” the spokesperson said.

For More on First Brands’ Collapse:
First Brands Loan Hits 30 Cents as Fresh Rescue Seen as Critical First Brands Rushes to Stem Panic as Loan Plunges Below 60 Cents First Brands’ Business Flails as Customers Don’t Know Who to Pay First Brands Blindsides Wall Street in ‘Black Box’ Loan Fiasco Explainer: Why First Brands’ Collapse Rattled Wall Street

For More on First Brands’ Collapse:

First Brands Loan Hits 30 Cents as Fresh Rescue Seen as Critical

First Brands Rushes to Stem Panic as Loan Plunges Below 60 Cents

First Brands’ Business Flails as Customers Don’t Know Who to Pay

First Brands Blindsides Wall Street in ‘Black Box’ Loan Fiasco

Explainer: Why First Brands’ Collapse Rattled Wall Street

Onset said in court papers that it was the largest source of liquidity for First Brands before its Chapter 11 filing, advancing more than $1 billion over the past year for acquisitions, working capital and tariff-related pressures.

Led by James, former management repeatedly assured Onset that the business was sound and its collateral “fully protected.” Those assurances, Onset claims, were false and designed to divert hundreds of millions of dollars, according to a November court filing.

Last month, First Brands Interim Chief Executive Officer Charles Moore testified that new managers brought in after James stepped down uncovered evidence of massive financial fraud. At a federal court hearing in Houston, Moore described how fake invoices and double-pledged collateral were used to trick lenders into giving First Brands new loans.

Moore also alleged that James ordered finance staff to move hundreds of millions of dollars in corporate cash to his personal accounts, a family trust and entities he controlled. The lawsuit builds on those claims in an attempt to hold James responsible for the company’s collapse.

Such lawsuits, called fraudulent transfer cases, are often used in bankruptcy to collect money for creditors. Last week, First Brands sought to reassure skittish lenders after the value of its $1.1 billion bankruptcy rescue loan collapsed.

James on Monday again denied wrongdoing, saying First Brands’ bankruptcy advisers never directly tied-him to allegedly manipulated invoices or double-pledged collateral.