First Brands founder Patrick James pleads not guilty to fraud

By Jonathan Stempel

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

The nine-count indictment accused James, who was also First Brands' chief executive, 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 a U.S. magistrate judge 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 criminal enterprise charge. He also pleaded not guilty on Wednesday.

The brothers were arrested on January 29 in Ohio. Patrick James was freed on a $50 million bond and Edward James was freed on a $25 million bond. Both were ordered subject to home confinement.

First Brands' implosion in September alarmed Wall Street, in part because major financial services companies including BlackRock BLK.N, Jefferies JEF.N and Switzerland's UBS UBSG.S helped fund its growth.

The Cleveland-based company's Chapter 11 filing on September 28 also disrupted the supply chain of automakers including Ford F.N and General Motors GM.N.

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

Prosecutors allege the defendants' 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.

In December, federal prosecutors in Manhattan unveiled criminal fraud charges against top executives of subprime auto lender Tricolor, which filed to liquidate in bankruptcy 18 days before First Brands sought protection from its creditors.

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.