The founder of an auto parts company whose bankruptcy rattled Wall Street and prompted a debate about private credit has been charged with fraud.
Manhattan federal prosecutors on Thursday charged Patrick James and his brother Edward James in a multibillion-dollar fraud scheme that they allege involved years of fake invoices and the double- and even triple-pledging of assets.
Patrick James is the founder and former CEO of auto parts maker First Brands, which filed for Chapter 11 bankruptcy protection in September. Its bankruptcy was followed by the collapse of subprime auto-lender Tricolor Holdings, sparking a broader debate about the health of the credit market that drew in JPMorgan CEO Jamie Dimon.
His brother had been a senior executive at the company.
The two men were charged with wire fraud, bank fraud, and conspiracy, including money laundering conspiracy. Patrick James faces an additional count, stemming from allegations that he ran a continuing financial crimes enterprise. A third former executive, Peter Andrew Brumbergs, has pleaded guilty in the case.
Prosecutors said the men inflated invoices, repeatedly pledged the same assets as collateral for loans, and falsified corporate financial statements in a series of schemes that yielded billions of dollars in financing.
A spokesperson for Patrick James said he denies the charges.
“He built First Brands from nothing,” the spokesperson said, adding, “Mr. James looks forward to presenting his case in court.”
Edward James’s lawyer issued a statement blasting his client’s arrest in Ohio as “needless theater.”
“We look forward to appearing in New York on his behalf, and we have complete confidence in Mr. James,” the lawyer, Seth DuCharme, said.
Jefferies and UBS are among the financial firms that have acknowledged exposure to First Brands.
“The James brothers obtained billions for First Brands — and millions for themselves — by presenting their lenders with the impression of a successful, growing international business,” Manhattan US Attorney Jay Clayton said in a statement.
