Former CEO Patrick James and former senior executive Edward James allegedly deceived banks and lenders through fake collateral, pledged assets and misleading financial statements
New York—United States attorneys, the FBI, IRS and Homeland Security Investigations announced last week the unsealing of an indictment charging Patrick James, the founder and former CEO of First Brands Group, LLC, and his brother Edward James, a former senior executive at First Brands, with conspiracy to commit wire fraud and bank fraud, conspiracy to commit money laundering, and multiple counts of wire fraud and bank fraud, in connection with various schemes to defraud lenders regarding the liabilities and financial condition of First Brands.
Patrick James was charged in an additional count of managing a continuing financial crimes enterprise in connection with the charged schemes. Both men were arrested in Ohio.
First Brands issued the following statement after the arrests:
“The criminal charges relate to alleged historical actions by certain former executives who are no longer with First Brands Group or involved in the management, governance, or day-to-day operations of the Company. While these matters concern past conduct, their impact is being felt now by thousands of people.
“This is a tragic situation that has disrupted the lives of employees, families, and communities who depend on this business. We recognize the very real human toll of these events and the uncertainty many are facing.
“The Special Committee of the Board of Managers continues to conduct an independent review of historical business practices, and the Company intends to continue pursuing all available claims and causes of action against Patrick James, Edward James, and others to maximize value for the estate. First Brands Group is fully cooperating with law enforcement and remains focused on advancing its ongoing sale process during this time.”
As alleged in the indictment, Patrick and Edward James perpetrated a yearslong fraud at First Brands, eventually bankrupting the global automotive company in September 2025. At the time of its bankruptcy, First Brands — a company that reported approximately $5 billion in net annual sales worldwide — declared just $12 million in cash in its corporate bank accounts and over $9 billion in liabilities. As a consequence of the defendants’ fraudulent schemes, First Brands’ lenders and creditors now face billions in losses.
Also unsealed is the guilty plea of Peter Andrew Brumbergs in connection with his role in the scheme. He pled guilty and is cooperating with the Government.
“As alleged in the indictment, Patrick James, together with his brother, Edward James, perpetrated a staggering fraud at First Brands Group,” said U.S. Attorney Jay Clayton. “The James brothers obtained billions for First Brands — and millions for themselves — by presenting their lenders with the impression of a successful, growing international business. The indictment and the guilty plea unsealed today describe a very different reality: a business run through fraud, fake documents, and false financials. Together with our law enforcement partners, we will continue working tirelessly to uncover every aspect of this fraud and vindicate the rights of every victim.”
FBI Assistant Director in Charge James C. Barnacle, Jr., said, “These executives allegedly inflated invoices, double- and triple- pledged collateral, and falsified financial statements to unlawfully trick lenders into giving them billions of dollars. Not only did their alleged deceit exploit the integrity of our financing system, they also betrayed the trust of the companies funding First Brands by mispresenting their business’s financial position.”
From at least in or about 2018 through in or about 2025, Patrick James and Edward James built and bankrupted First Brands Group, LLC. First Brands operated as an automotive aftermarket parts supplier that developed, marketed, and sold replacement parts such as brakes, filters, wipers, and lights under various brand names.
As alleged, the defendants perpetrated multiple fraud schemes to fake and falsely inflate invoices for accounts receivable and payable; double- and triple-pledge loan collateral; falsify corporate financial statements; and conceal substantial liabilities from lenders. These schemes yielded billions of dollars in financing to First Brands and enabled both men to reap millions of dollars in fraud proceeds.
To sustain First Brands’ growth-through-acquisition strategy, Patrick James and Edward James misled various counterparties to fraudulently inject cash into First Brands. First, Patrick James and Edward James deceived First Brands’ factoring partners, that is, financing counterparties that purchased First Brands’ accounts receivable (invoices) and the right to payment thereunder, in exchange for advancing a portion of the value of those invoices upfront.
At their direction, First Brands obtained billions in invoice-based financing from factors through a series of fraudulent schemes. As part of those schemes, First Brands employees routinely submitted fake invoices, fraudulently inflated invoices, and double-pledged invoices for the purpose of selling and pledging them to factoring counterparties as if they represented valid, collectible receivables from customers.
In some instances, invoices were generated for transactions that had never occurred, while in others the dollar amounts on invoices were altered to make them appear more valuable. Through the defendants’ fraud schemes, First Brands sold its factoring partners billions of dollars of purported customer receivables that did not exist.
First Brands submitted false and misleading invoice information and false and misleading information about First Brands’ financial position to induce financers to increase the funds advanced, a portion of which First Brands diverted to itself to cover cash needs.
At First Brands, these self-payments were referred to as “round trips” or, euphemistically, as “corporate initiatives.” Patrick James and Edward James closely monitored and managed these “round trip” transactions as part of First Brands’ daily cash-management process.
Both defrauded First Brands’ lenders by disseminating materially false and misleading financial information about the company and secretly encumbering assets subject to the lenders’ borrowing base and priority liens. At the direction and with the approval of Patrick James, First Brands employees made unsupportable financial statement adjustments to meet financial benchmarks set by Patrick James. To implement these directives, First Brands employees maintained internal “bridge” files that juxtaposed accurate corporate financials with the manipulated versions.
Unbeknownst to First Brands’ lenders, both men also incurred massive off-balance-sheet debt through inventory-financing arrangements involving entities wholly owned and controlled by Patrick James (“James Entities”). The James Entities were nominally separate from First Brands.
In fact, they had no independent business operations. Through the James Entities, Patrick James entered financing arrangements with at least three inventory financers (“off-sheet lenders”), whereby the lenders advanced funds to the James Entities to purchase inventory from First Brands.
The James Entities, in turn, pledged that inventory purchased from First Brands back to the off-sheet lenders as collateral for their loans. At the direction of Patrick James, the inventory financing arrangements with the James Entities were maintained outside the First Brands corporate balance sheet and thereby concealed from First Brands’ senior lenders, who routinely requested and received First Brands’ financial statements.
To further obscure the off-sheet lenders as a source of funds to First Brands, Patrick James routed the loan proceeds from the off-sheet lenders through a customer collections entity maintained outside the First Brands corporate structure, then disbursed the proceeds to First Brands subsidiaries before sweeping the funds into First Brands’ operating account.
The defendants designed this flow of funds so that the funds appeared to be ordinary customer receipts from retail subsidiaries rather than loan proceeds from related-party financing arrangements with the James Entities.
Finally, at the direction of Patrick James and Edward James, First Brands made false and misleading representations to the off-sheet lenders to fraudulently induce them to extend and expand financing. The James Entities pledged inventory that both men purported to be unencumbered but in fact was already subject to liens by, or otherwise pledged to, First Brands’ senior lenders and remained on First Brands’ balance sheet.
By 2025, after years of acquisitions and expansion using fraudulently obtained financing, First Brands faced overwhelming liabilities and unsustainable cash requirements. In 2025, Patrick James and Edward James led efforts to refinance First Brands’ debt or to sell the company, including through last-ditch attempts to deceive lenders and potential acquirers by disseminating false financials. These efforts failed when First Brands was unable to provide the prospective counterparties with the financial diligence they sought. On September 28, 2025, First Brands filed for bankruptcy.
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