Investment giant Jefferies Financial Group is aggressively pushing to depose Patrick James, the founder and former CEO of bankrupt auto parts supplier First Brands. This move comes despite James signaling his intent to invoke his Constitutional right against self-incrimination. Jefferies argues this right cannot be used as a blanket shield to avoid a deposition altogether.
Legal Battle Over "Critical Information"
In a court filing made on Monday, Jefferies' Leucadia Asset Management unit stated that James holds "critical information" regarding the creation and sale of invoices. This information is deemed vital for a company request to unlock customer funds. James has indicated he would likely plead the Fifth Amendment, citing an ongoing federal criminal investigation.
However, Leucadia countered this argument, stating that the Fifth Amendment does not permit a witness to refuse to sit for a deposition "before any questions are asked." The filing highlighted that James has "loudly and publicly denied the allegations of wrongdoing, including in open court and in multiple filings", which they claim undermines his current stance.
Allegations of Fraud and a $715 Million Stake
The core of the dispute lies in serious allegations against James. First Brands has accused him of misappropriating company funds. Furthermore, it is alleged that before its bankruptcy filing in late September, the company raised money by selling invoices that were either non-existent or doctored.
Leucadia, through its Point Bonita Capital hedge fund, revealed it paid more than $715 million to First Brands to purchase receivables that were still outstanding when the company filed for Chapter 11 protection. Jefferies has clarified that its indirect investments account for $43 million, or 5.9%, of Point Bonita’s receivables bought from First Brands, plus a $2 million interest in company bank loans.
Wider Fallout and Investigations
The scandal has ensnared other former executives. A previous finance director for First Brands has also stated he would assert his Fifth Amendment right if compelled to answer creditor questions. Separately, other current and former managers are seeking insurance coverage to handle the costs of probes by creditors and the U.S. Department of Justice—a common step when a bankrupt firm faces fraud accusations.
James' spokesperson, when contacted, referred to a prior statement asserting the founder had "no role" in matters related to customer funds and thus possesses no relevant information for Jefferies. James has consistently denied any wrongdoing, stating he "has always acted ethically."
The immediate next step rests with a federal judge, who is scheduled to consider James' request to block Jefferies' subpoenas on Tuesday. The outcome will significantly impact the investigation into one of the major corporate bankruptcies of the year.
