NEW YORK, Jan 29 (Reuters) - First Brands Group founder Patrick James and his brother Edward have been indicted in New York for allegedly defrauding lenders out of billions of dollars before the auto parts
supplier collapsed into bankruptcy.
An indictment was made public on Thursday in Manhattan federal court.
The nine-count indictment contains charges including running a continuing financial crimes enterprise, bank fraud, wire fraud and money laundering conspiracy. Both defendants could face decades in prison if convicted.
Lawyers for the defendants were not immediately available for comment.
Patrick James had been First Brands' chief executive, while Edward James was a senior vice president.
Prosecutors said the defendants "perpetrated a series of fraudulent schemes" against First Brands' lenders and financing partners.
These schemes allegedly included inflating invoices, double- and triple-pledging loan collateral, falsifying financial statements, and concealing substantial liabilities.
"These schemes yielded billions of dollars in financing to First Brands and enabled Patrick James and Edward James to reap millions of dollars in proceeds derived from their fraud," the indictment said.
FAST EXPANSION, RAPID DECLINE
First Brands was founded in 2013, and by last year had become one of the world’s largest suppliers of auto parts such as brakes, filters and lighting systems, with about $5 billion in annual sales.
Prosecutors said First Brands financed its growth by borrowing billions of dollars that were secured by inventory and physical assets such as plants and equipment.
This, according to prosecutors, left First Brands vulnerable to cash flow disruptions and potential declines in asset values, leaving the company dependent on access to capital.
First Brands imploded quickly in September, when it filed for Chapter 11 protection from creditors.
FORD, GM TO PROVIDE SOME HELP
On Monday, it said it had begun winding down parts of its North American operations while it seeks buyers for various assets.
Despite borrowing $1.1 billion after filing for bankruptcy, First Brands said earlier this month that cash on hand had shrunk to $190 million.
At a Thursday hearing in Houston bankruptcy court, First Brands received a judge's permission to obtain short-term financing from General Motors and Ford.
The automakers will prepay $48 million for parts deliveries over the next week, and perhaps more financing week-to-week, to allow First Brands to continue operating businesses that serve them.
Those businesses employ 17,000 people in North America. First Brands has already shut operations at its Brake Parts, Cardone and Autolite units, which employed 4,000 people.
(Reporting by Jonathan Stempel and Dietrich Knauth in New York, Editing by Elaine Hardcastle and Lisa Shumaker)
