UPDATE 3-First Brands founder indicted for fraud after bankruptcy that hit lenders, Ford, GM

The founder of First Brands has been indicted by federal prosecutors for allegedly defrauding lenders out of billions of dollars before the auto parts supplier collapsed into bankruptcy.

The founder of First Brands has been indicted by federal prosecutors for allegedly defrauding lenders out of billions of dollars before the auto parts supplier collapsed into bankruptcy. Patrick James, who was also First Brands' chief executive, was charged in a nine-count indictment made public on Thursday with running a continuing financial ⁠crimes enterprise, bank fraud, wire fraud and money laundering conspiracy.

His brother Edward James, who had been a First Brands senior vice president, faces most of the same charges. Both defendants could face decades in prison if convicted. Prosecutors filed the indictment in Manhattan federal court. The charges add a criminal dimension to the implosion of First Brands, once one of the world's largest auto parts suppliers, whose Chapter 11 case has disrupted the supply chain for ​major automakers including Ford and General Motors. "Patrick James is presumed innocent and denies these charges," a spokesperson said in an email. "He built First Brands from nothing into a global industry leader and has always been devoted ‍to the success of the company. Mr. James looks forward to presenting his case in court."

Seth DuCharme, a lawyer for Edward James, said in an email that his client "has conducted himself with integrity and dignity over decades of hard work.... We look forward to appearing in New York on his behalf and we have complete confidence in Mr. James." First Brands filed for protection from creditors in September, with more than $9 billion of liabilities. Its bankruptcy also sparked fear among Wall Street lenders exposed to the privately held, Cleveland-based company. Jefferies Financial ⁠Group and Switzerland's ‌UBS are among the most exposed financial firms to First ⁠Brands. Both companies declined to comment. First Brands has begun winding down some businesses, while looking for buyers for its other assets. Its new management sued Patrick James in November, accusing him of leaving the company insolvent while transferring hundreds of millions of dollars to himself. FAST ‍EXPANSION FUELED BY IMPROPER ACCOUNTING, PROSECUTORS SAY

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.

But according to the indictment, the Jameses manufactured that growth through "a series ⁠of fraudulent schemes" against lenders and financing partners. This left First Brands vulnerable to cash flow disruptions and potential declines in asset values, and dependent on continued access to capital, prosecutors said.

By double- and triple-pledging loan collateral, faking invoices and concealing substantial liabilities, the Jameses generated billions of dollars ⁠in financing for First Brands while reaping "millions of dollars in proceeds derived from their fraud," the indictment said. Prosecutors said that as cash dried up and liabilities mounted, the Jameses "closed ranks" to prevent creditors, auditors and potential asset buyers from seeing First Brands' dire outlook.

Members of their inner circle allegedly expressed concern in an email that people might "slip and say the wrong thing" to those counterparties, including by revealing First Brands' dependence on debt and ⁠financing arrangements that were off its balance sheet, the indictment said. FORD, GM TO PROVIDE SOME HELP At a Thursday hearing in Houston bankruptcy court, First Brands received a judge's permission to obtain short-term financing from Ford and ⁠GM.

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 begun winding down its Brake Parts, Cardone aftermarket parts and Autolite spark-plug units, which together employed 4,000 people, 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.

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