Here's what you need to know
- More than 3,500 First Brands employees have been laid off as the company winds down many of its 20-plus brands.
- Lawsuits are flying as First Brands sues its founder and former CEO, Patrick James, alleging he used company money to buy houses, cars and that it's not the first time.
- Investment banks are filing suit as funds' exposure to First Brands' receivables come to light. Two suits involve Jefferies, a New York investment bank.
First Brands' sprawling Chapter 11 bankruptcy case continues roll on as lawsuits fly among lenders, creditors and former employees.
Bankruptcy case
First Brands filed for bankruptcy in September, but the hearings continue as creditors fight to recover their losses. In a hearing Monday, Evolution Credit Partners asked Judge Christopher Lopez for adequate protection for its assets.
Michael Duke of Elsberg Baker & Maruri PLLC, counsel for Evolution, alleged First Brands was continuing to burn through money to the tune of $25 million per week. Evolution has an adversary case — a legal proceeding in a bankruptcy case similar to a lawsuit — against First Brands.
The next hearing in the bankruptcy case is March 11.
First Brands Group LLC et al. v. Onset Financial Inc. et al.
Earlier this year, First Brands sued one of its creditors, Onset Financial, just before the indictments of brothers and former First Brands executives Patrick and Edward James.
In the suit, First Brands alleges Onset Financial and its investors — including Edward James, and a host of investment groups — perpetrated a scheme to defraud creditors out of billions of dollars.
"Simply put, Onset and Edward James made a deal — James would work against the debtors as Onset's secret partner and together they would rig scores of supposed 'contracts' between the debtors and Onset to enrich themselves at everyone else's expense," the suit says. "As a result, Onset (and its secret partner Edward James) obtained transfers of approximately $2.9 billion in cash, triple-digit returns, and alleged interests in inventory and equipment."
The suit seeks to recover the cash and property.
Last week, Onset and other defendants filed a motion to dismiss First Brands' suit. The financier says it funded nearly $3 billion to First Brands from 2018-2025, secured by inventory and equipment. As of First Brands' Chapter 11 filing, Onset says it was still owed at least $2.17 billion.
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"Like scores of sophisticated lenders, investors and other industry and market participants, Onset [and its funding partners] were deceived by 'falsified inventory schedules,' fake 'account documentation,' and collateral that, if it even existed, was often double- or triple-pledged to different lenders without knowledge or consent," Onset's motion says.
Onset also has a adversary case against First Brands.
First Brands Group LLC et al. vs. Patrick James et al.
This suit was filed after the bankruptcy petition and before Patrick James' indictment. In it, First Brands alleges James and several entities controlled or owned by him defrauded lenders for billions of dollars to fund his and his family's lavish lifestyle.
It says that when First Brands filed for bankruptcy, it had $5 billion in annual sales, $9.3 billion in debt obligations and just $12 million in the bank. It also details where it says the proceeds of James' alleged deals went, giving examples of a home in Malibu and one in the Hamptons, as well as an extensive car collection that includes 17 exotic cars.
James objects to First Brands' characterization of his actions, with court filings calling the claims "wild allegations."
"Further underscoring the incomplete investigation and one-sided narrative that (First Brands) presented in service of the extraordinary relief they sought, (First Brands) creates the specter of 'misappropriation' and fraudulent transfers by making blanket assertions that hundreds of millions of dollars were moved out of (First Brands) to (James) — but conveniently skip over the fact that hundreds of millions of dollars were reinvested into First Brands by Mr. James and related entities over the years," one motion reads.
First Brands' suit also claims this isn't the first time James has faced these kinds of allegations. It outlines a 2009 case where Tristate Capital Bank sued James and his companies for "repeatedly misleading a borrower group about the nature and value of collateral, the condition of the business, and the disposition of assets and proceeds," it says. That case was settled, as was a 2011 lawsuit wherein the Fortress Value Recovery Fund alleged James created and used "a web of affiliated entities to move money from his heavily indebted company to other management entities. This suit was settled for $6 million, it says. In 2018, a similar suit was filed in Michigan against James says "promoted a segment of his conglomerate Vari-Form as an independent asset and secured new debt financing from investors," and cited a person familiar with the matter. The suit goes on to say Vari-Form filed for insolvency.
First Brands' suit against Patrick James is on track to go to trial in June.
Investors take to court
Western Alliance said Friday it was suing investment bank Jeffries Financial for not completing payment of $126.4 million it owed for loans tied to First Brands Group and collateralized by accounts receivable purchased from First Brands.
"I can't tell you what's behind Jefferies' motive," says Western Alliance CEO Kenneth Vecchione. "We are deeply disappointed by Jefferies' conduct."
On Monday, Jefferies' President and CEO Rich Handler and President Brian Friedman released a letter responding to Western Alliance's claims.
"Both the lawsuit and Mr. Vecchione's statements ignore the simple reality that Western Alliance did not extend credit to Jefferies," the letter says. "Instead, for over four years, Western Alliance made non-recourse loans in increasing amounts to special purpose entities that held First Brands receivables, with no guarantee or other credit support from Jefferies or any of its other affiliates."
The investment firm says Western Alliance leant money to LAM Trade Finance Group, owned by the Point Bonita master fund, which purchased First Brands receivables. It also made loans to LAM TFG I SPV LLC, an LLC also owned by Point Bonita master fund that exists to hold First Brands receivables.
"Jefferson honors all its obligations," the letter continues. "Jefferies has no obligation to pay off a non-recourse loan Western Alliance chose to make to a special purpose vehicle against First Brands receivables. The statement that Jefferies 'couldn't' repay $126 million is false and absurd."
This isn't the only case involving Jefferies and Point Bonita. Investors in two funds in the British Virgin Islands say the Point Bonita fund claimed to have cash dominion over receivables from First Brands, but in fact, First Brands retained control of the receivables and may have used them to commit fraud. They are seeking $18.4 million in damages.
Recent guilty pleas
Two former First Brands executives have plead guilty in the bank fraud case and are cooperating with prosecutors. Stephen Graham is the company's former CFO and Peter Andrew Brumbergs is a former vice president.
