First Brands founder Patrick James pleads not guilty to fraud

By Jonathan Stempel

NEW YORK, Feb 4 (Reuters) – Patrick James, the founder of First Brands, pleaded not guilty on Wednesday to charges he defrauded lenders out of billions of dollars before the auto parts supplier collapsed into bankruptcy.

The nine-count indictment accused James, who was also chief executive of Cleveland-based First Brands, of leading an eight-year scheme to deceive lenders into financing the company’s growth by double- and triple-pledging loan collateral, faking invoices and hiding substantial amounts of debt.

James entered his plea before U.S. Magistrate Judge Robyn Tarnofsky in Manhattan to nine criminal counts including running a continuing financial crimes enterprise, bank fraud, wire fraud and money-laundering conspiracy.

His brother Edward James, a former top First Brands executive, was charged with eight criminal counts, excluding the financial-crimes enterprise charge. He also pleaded not guilty on Wednesday.

At a subsequent hearing, U.S. District Judge Analisa Torres set a July 13 trial date.

FIRST BRANDS’ COLLAPSE AFFECTED FINANCIAL FIRMS, AUTOMAKERS

Founded in 2013, First Brands supplied auto parts including brakes, filters and lighting systems and had about $5 billion in annual sales.

First Brands’ implosion in September alarmed Wall Street, in part because major financial services companies including BlackRock, Jefferies and Switzerland’s UBS helped fund its growth.

The company’s Chapter 11 filing on September 28 also disrupted the supply chain of automakers including Ford and General Motors.

Federal prosecutor Nicholas Chiuchiolo said at the arraignment that the defendants caused more than $10 billion of losses, including for “some of the most sophisticated financial institutions in the world,” while collecting tens of millions of dollars for themselves.

Prosecutors said the alleged fraud lasted from 2018 to 2025. Another former First Brands executive, Vice President of Finance Andy Brumbergs, entered a related guilty plea and is cooperating with prosecutors.

BAIL CONDITIONS EASED

The Jameses were arrested on January 29 in Ohio.

A judge there allowed Patrick James to be freed on a $50 million bond and Edward James to be freed on a $25 million bond, subject to home confinement and electronic monitoring.

Tarnofsky lifted a requirement that the defendants wear monitoring bracelets, and said they could be monitored through their cellphones.

While both defendants could face decades in prison if convicted, Tarnofsky eased bail conditions after defense lawyers assured that their clients would not flee.

Patrick James and Edward James are Malaysian-born U.S. citizens.

“It is very much Mr. James’ intent to go into court and proclaim his innocence,” said Scott Hartman, a lawyer for Patrick James.

Seth DuCharme, a lawyer for Edward James, said his client is not going to “run off to Southeast Asia where he allegedly has all this money.”

Last week, First Brands began winding down its Brake Parts, Cardone aftermarket parts and Autolite spark-plug units. It is trying to sell other assets to maximize value for creditors.

(Reporting by Jonathan Stempel in New York; Editing by Matthew Lewis and Nick Zieminski)