In a dramatic turn within a major corporate insolvency case, Patrick James, the founder of auto-parts supplier First Brands, has asked a judge to dismiss a lawsuit accusing him of misappropriating hundreds of millions of dollars. James contends that the company's collapse was caused by external economic pressures and "predatory" off-balance-sheet lenders, not his actions.
Founder Points Finger at Lenders' "Predatory" Tactics
In a court filing submitted on Monday, James's legal team argued there is insufficient evidence to hold him solely responsible for the bankruptcy. They outlined a defense stating that First Brands could not withstand a combination of rising interest rates, tariffs, and the crippling costs linked to its off-balance-sheet debt. James described the financing arrangements as "usurious."
James specifically named Onset Financial Inc., one of the lenders, alleging it "charged onerous fees" and likened the financing to a "commercial payday loan." He claimed these lenders' practices severely damaged the company in the weeks leading up to its Chapter 11 bankruptcy filing. Onset Financial, however, has stated in court documents that it is owed more than $2 billion and was the largest source of liquidity for First Brands before its collapse, advancing over $1 billion in the past year.
New Management Alleges Widespread Financial Fraud
The lawsuit against James builds on allegations made by the company's new management. Last month, Interim CEO Charles Moore testified in a Houston federal court that an investigation after James stepped down uncovered evidence of massive financial fraud. Moore described a scheme involving fake invoices and double-pledged collateral used to deceive lenders into providing new loans.
Moore further alleged that James directed finance staff to transfer hundreds of millions of dollars in corporate cash to his personal accounts, a family trust, and entities under his control. These claims form the basis of a fraudulent transfer lawsuit, a common tool in bankruptcy to recover funds for creditors.
A Clash of Narratives in Bankruptcy Court
The case presents two starkly different narratives. Onset Financial, in its response, called the fraud allegations "simply stunning." A spokesperson stated the firm showed "extraordinary patience and flexibility" through multiple forbearance agreements and will vigorously defend its position. Onset also claims that James and former management repeatedly gave false assurances about the company's health to secure more funds.
James has again denied any wrongdoing, asserting in Monday's filing that bankruptcy advisers never directly linked him to the allegedly manipulated invoices or double-pledged collateral. The legal battle unfolds as First Brands works to stabilize its operations, having recently sought to reassure lenders after the value of its $1.1 billion bankruptcy rescue loan faltered.
