First Brands Sues Founder’s Brother, Largest Creditor for Fraud
(Bloomberg) — Bankrupt auto parts maker First Brands Group has filed a lawsuit against Edward James, its former executive and brother of company founder Patrick James, and its largest creditor, Onset Financial, for conspiring to “defraud creditors out of billions of dollars and property.”
According to a lawsuit filed Friday, Edward James “would work against the company as Onset’s secret partner” and together “they would rig numerous so-called ‘contracts’ between debtors and Onset to enrich themselves at everyone else’s expense.”
The lawsuit alleged that Onset and James created a series of so-called sale and leaseback transactions that left First Brands billions of dollars in debt on “excessive terms.” “As a result, Onset (and its secret partner Edward James) received approximately $2.9 billion in cash transfers, triple-digit returns, and alleged interests in inventory and equipment.”
The complaint opens a new front in the contentious Chapter 11 case, pitting James and Onset against other creditors who stand to benefit if the lawsuit filed in Houston is successful. First Brands is now seeking to recover the money and property obtained through the allegedly fraudulent transactions.
The lawsuit follows a similar lawsuit filed Monday by a group of creditors. In this case, the lenders accused Onset of “plundering” the company through usurious financing arrangements approved by Edward James. In exchange, Onset agreed to pay him hundreds of millions of dollars through additional fees and the right to personally invest in the financing, Monday’s lawsuit alleged.
Similar allegations were made in First Brands’ lawsuit, stating that Edward James and Onset “obtained huge above-market interest and fee payments” and that their work forced First Brands to borrow money “far in excess of its legitimate needs.”
Edward James had invested about $150 million with Onset and hoped to attract about $280 million from First Brands and related financing institutions “before the house of cards collapsed,” according to the company’s lawsuit. “Before the music stopped, Onset (and partner Edward James) had collected over $2.3 billion in payouts.”
Additional court documents show that First Brands transferred more than $600 million in cash to Onset as of September, bringing the total to approximately $2.9 billion.
Onset denied any wrongdoing, blamed the James brothers for the collapse of First Brands and suggested they were a victim.
“The Debtors’ latest false and defamatory allegations are a desperate attempt to accuse a victim of dealing in good faith with First Brands Group before its shocking collapse,” Onset said in a statement.
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