Jefferies Pushes to Question First Brands Founder Under Oath

(Bloomberg) — Jefferies Financial Group is pushing to question First Brands founder Patrick James under oath, saying the former CEO’s potential exercise of his Constitutional right against self-incrimination doesn’t mean he can avoid an upcoming deposition.

Jefferies’ Leucadia Asset Management said at a hearing on Monday that James had “critical information” about the creation and sale of invoices related to the company’s request to unlock customer funds. Citing a federal criminal investigation, James said Jefferies would likely invoke his Fifth Amendment right against self-incrimination to block subpoenas.

Leucadia noted that the Fifth Amendment does not allow a witness to refrain from sitting for deposition “before any questions have been asked,” adding that James “vocally and publicly denied allegations of wrongdoing, including in open court and on multiple motions, and excluded any allegations that he could now avoid testifying.”

First Brands accused James of embezzling company funds, claiming the auto parts supplier raised money before the bankruptcy by selling non-existent or doctored invoices. Jefferies, other First Brands creditors, company advisors and U.S. authorities are investigating the circumstances surrounding the auto parts supplier’s September bankruptcy, according to court documents.

When asked for comment, a spokesman for James referred to a previous statement from the company founder suggesting that First Brands played no role in matters relating to client funds and therefore had no relevant information to offer Jefferies. He denied allegations of wrongdoing and said he had “always acted ethically”.

In addition to James, a former First Brands financial director also said he would defend his Fifth Amendment right if he had to answer creditors’ questions. According to court documents, other current and former First Brands executives sought to use insurance to cover the costs of investigations by creditors and the U.S. Department of Justice; This is a common situation where a bankrupt company is accused of fraud.

Leucadia said Monday that it needed information to determine how First Brands invoices were created and sold and how those documents relate to actual invoices and receivables. According to court documents, the firm first received information from First Brands, which referred Leucadia to James and another former vice president.

Leucadia, acting through hedge fund Point Bonita Capital, said in the court filing that it paid First Brands more than $715 million to buy up receivables that were outstanding when the auto parts supplier filed Chapter 11 in late September.

Jefferies said its indirect investments include “effectively $43 million, or 5.9%, of Point Bonita’s account receivables purchased from First Brands,” as well as $2 million in interest on company bank loans through a separate platform.

A federal judge is scheduled to consider James’ request to block the subpoenas on Tuesday.

(Update includes statement from James’ spokesperson in fifth paragraph.)

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