First Brands Sues Founder’s Brother for Fraud
Suit Claims Edward James, Company's Largest Creditor Conspired 'to Defraud Creditors Out of Billions of Dollars and Property'
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Bankrupt auto parts maker First Brands Group has sued Edward James — its former executive and the brother of company founder Patrick James — and its largest creditor, Onset Financial, for conspiring “to defraud creditors out of billions of dollars and property.”
According to a lawsuit filed Jan. 9, Edward James “would work against the company as Onset’s secret partner” and together “they would rig scores of supposed ‘contracts’ between the debtors and Onset to enrich themselves at everyone else’s expense.”
Onset and James created a bevy of supposed sale and leaseback transactions, saddling First Brands with billions of dollars in debt on “outrageous terms,” the lawsuit alleged. “As a result, Onset (and its secret partner Edward James) obtained transfers of approximately $2.9 billion in cash, triple-digit returns, and alleged interests in inventory and equipment.”
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The complaint opens a new front in the contentious Chapter 11 case by pitting James and Onset against other creditors who would benefit should the lawsuit, filed in Houston, succeed. First Brands is now looking to recover the cash and property that was obtained through the allegedly fraudulent transactions.
The lawsuit follows similar legal action filed by aJan. 5. In that case, the lenders accused Onset of “pillaging” the company through usurious financing arrangements approved by Edward James. In return, Onset agreed to pay him hundreds of millions of dollars through additional fees and by granting him the right to personally invest in the financings, the Jan. 5 suit alleged.
First Brands’ lawsuit made similar claims, stating that Edward James and Onset “obtained massive, above-market interest and fee payments” and that their work forced First Brands to take on debts “vastly exceeding their legitimate needs.”
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Edward James had invested nearly $150 million alongside Onset, hoping to extract nearly $280 million from First Brands and related financing entities “before the house of cards came crashing down,” according to the company’s lawsuit. “Before the music stopped, Onset (and its partner Edward James) obtained over $2.3 billion in payments.”
Additional court documents show that First Brands had also transferred more than $600 million in cash to Onset as of September, bringing the total to about $2.9 billion.
Onset denied wrongdoing, blaming the James brothers for First Brands’ collapse and arguing that it is a victim.
“The latest false and defamatory claims by the debtors are a desperate attempt to blame a victim for doing business in good faith with First Brands Group before its stunning collapse,” Onset said in a statement.
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