First Brands founder accused of looting firm

It was one more trick in a series of alleged ruses – from fudged numbers and questionable collateral, to off-balance-sheet financing and a company slush fund — at First Brands Group, company advisers now claim.

Directing it all, First Brands’ bankruptcy lawyers alleged Monday, was founder Patrick James. The Malaysian-born businessman persuaded prominent Wall Street firms to lend vast sums to his auto-parts company and then misappropriated millions, if not billions, of that money, their lawsuit claims.

Seventeen “exotic cars.” “Lavish” homes in Malibu and the Hamptons. Six-figure bills for a “celebrity” chef and a personal trainer. Those are just some of the allegations involving James’ supposed big-spending lifestyle.

The September collapse of First Brands, a midsize manufacturer that normally wouldn’t draw much attention on Wall Street, has exposed cracks in today’s turbo-charged credit market.

But Monday’s civil lawsuit, which cited the allegedly doctored invoice and dozens of others like it, adds new layers to the financial drama. It also tells a darker story – one of high living financed by years of outright fraud.

The suit claims James siphoned hundreds of millions of dollars from First Brands, all while the company doctored its accounts and promised the same collateral to different lenders to secure private loans and off-balance sheet financing.

James “misrepresented First Brands’ financial position to secure billions in debt financing,” the suit claims. James then “secretly pilfered some of the company’s assets to fund his and his family’s lavish lifestyle.”

A spokesman for James vigorously denied creditors’ allegations Tuesday, characterizing the suit as “baseless” and “speculative.”

“Mr. James has always conducted himself ethically and is committed to doing everything he can to support First Brands’ stakeholders during the restructuring process,” the spokesperson said in a statement to Bloomberg News.

James’ lawyers said in court papers filed late Tuesday that claims about funds being transferred out of First Brands are not supported by evidence or documented asset tracing and instead, “appear to be based entirely on the unsupported mental leap that, if funds were transferred within time frame roughly close to personal expenditures by Mr. James, such funds must have been used for that personal expenditure.” 

Celebrity Chef

Among the most surprising allegations in the lawsuit is the claim that James directed First Brands to raise funds by selling non-existent or doctored invoices to so-called factoring firms, which provide immediate cash to businesses by purchasing their receivables. First Brands is also accusing James of commingling corporate and personal accounts and draining more than $700 million from the business. According to James’ lawyers, this allegation lacks accounting and other documentary evidence. 

By the time it filed for Chapter 11 on Sept. 28, First Brands had just $12 million in the bank, according to court papers.

Among the allegations in Monday’s lawsuit, James was said to have used money from First Brands accounts to pay $500,000 for a private “celebrity chef” this year and at least $3 million for rent on a New York City townhouse. (The name of the chef wasn’t disclosed.) 

James is also accused of directing others to submit invoices that were reimbursed by Battery Park Holdings LLC, an entity he owns. First Brands transferred more than $10 million to Battery Park between 2018 and 2025 to pay for his and his family’s personal expenses, according to court papers. 

One invoice Battery Park submitted to First Brands in 2023 sought reimbursement for more than $110,000 for a six-week stay at a “Southampton hotel” with two individuals not affiliated with First Brands, the lawsuit said.

Over the years, according to the suit, First Brands made other substantial transfers to entities controlled by James, transactions that occurred “in close proximity to his acquisition of various real estate properties and cars.” It included disbursements from First Brands prior to James purchasing a home in Malibu in 2019 and the Hamptons in August 2021, the lawsuit said.

In addition to the fleet of exotic cars, the suit claims James owns at least seven properties.

Asset Freeze

The situation is now so urgent that First Brands advisers have asked a Texas bankruptcy judge to freeze James’ bank accounts.

Charles Moore, First Brands’ interim CEO, said in a court filing that the company is concerned James, a resident of Ohio, could flee the U.S., calling him a “Malaysian national” with “hundreds of millions of dollars at his disposal.” Federal prosecutors are investigating First Brands, Bloomberg News reported in October.

“Mr. James is an American citizen with deep business and financial roots in the United States,” James’ spokesperson said in the statement Tuesday. “He also has not been a Malaysian citizen since 1988. The notion that he is a potential flight risk is patently absurd.”

The civil suit indicates that alleged wrongdoing at First Brands was more widespread than previously alleged and comes days after certain lenders accused the company of “widespread fraud.” First Brands is next scheduled to appear in Texas bankruptcy court on Thursday.

The $179.84 invoice from May 9 was packaged with thousands of others and later sold to Katsumi Global, a joint venture between Norinchukin Bank and Japanese trading house Mitsui & Co. Other invoices Katsumi purchased were also inflated, some by as much as $12,000 or $15,000, according to the lawsuit.

In all, the package of invoices was so inflated, Moore alleged in a court filing Monday, that Katsumi spent about $11 million to purchase First Brands invoices that were only worth about $2.3 million. A lawyer for Katsumi has said the venture has $1.75 billion of exposure to bankrupt auto-parts supplier.

James’ lawyers said on Tuesday that First Brands advisers are attempting to “smear” the company founder in order to obtain an order freezing his assets. The auto-parts supplier’s advisers have provided a one-sided account of the transactions and ignore large sums that James put into the business before it filed Chapter 11, including roughly $40 million over the summer, his lawyers said.

Creditor Disputes

The lawsuit also provides greater insight into a potential dispute between lenders that own roughly $6 billion in senior company debt and firms that had deals with the off-balance sheet First Brands special purpose vehicles.

Moore said the SPVs didn’t maintain adequate books and records and that an independent board investigation into the collapse is ongoing. However, he said it appears that the same inventory First Brands purportedly transferred to its SPVs instead remained in the borrowing base of the company’s asset-based loan and other credit facilities. 

The alleged double-pledging of collateral could set up a creditor fight in bankruptcy court. First Brands is next scheduled to appear in bankruptcy court in Texas on Thursday.

In the meantime, lenders in a Wednesday court filing called First Brands’ $1.1 billion in Chapter 11 financing, which it lined up to fund a potential restructuring of the business, “arguably among the riskiest in recent history.” 

“There are now documented allegations of rampant fraud against the debtors’ owner and CEO, Patrick James, and ongoing criminal investigations,” the lenders said, “which imperil the very fate of this company.”