US federal prosecutors have charged First Brands’ founder Patrick James and his brother Edward with fraud, alleging that for several years they oversaw and concealed the company’s misuse of invoice and inventory financing facilities.
In an indictment unsealed yesterday, the US attorney’s office in New York accused the duo of presenting fabricated invoices, pledging inventory multiple times and falsifying financial statements in order to deceive lenders, while taking steps to hide their conduct from third parties.
The charges mark the first time authorities have formally accused Patrick and Edward James – who until First Brands’ bankruptcy in September were chief executive and senior vice-president respectively – of committing fraud.
Their conduct “yielded billions of dollars in financing to First Brands and enabled Patrick James and Edward James to reap millions of dollars in proceeds derived from their fraud”, the indictment alleged.
“As a consequence of the defendants’ fraudulent schemes, First Brands’ lenders and creditors now face billions in losses,” it said.
Patrick James has denied the charges and a spokesperson said he “looks forward to presenting his case in court”.
Prosecutors alleged that the duo’s fraudulent conduct dated back to at least 2018.
For instance, under buyer-led supply chain finance programmes, First Brands allegedly presented fabricated invoices to third-party financing providers, but rather than paying suppliers, routed the funds back to the company.
Internally, prosecutors said, these self-payments were referred to as “round trips” or “corporative initiatives”, and were allegedly used to inject cash into the company to pay debt, rent and other operating costs.
As early as August 2021, they said First Brands’ vice-president of finance had raised concerns with Patrick and Edward James “that the volume of round-trip activity ‘was getting out of control’”.
Prosecutors added that in 2023, receivables financing providers were probing for more information about the underlying invoices they were funding, prompting a change in a strategy by Patrick James.
Around that time, an unnamed financing company requested and received invoices directly from a “lower-level” First Brands employee, the indictment said.
That financing company’s auditor questioned Edward James and others about “huge” discrepancies between the amounts on those invoices and the information previously provided by First Brands, it said.
In response, Patrick James allegedly directed that emails from certain third parties, including that financing company, be “restricted to an inner circle of First Brands executives… so that no low-level employee would inadvertently supply accurate information to an inquiring lender”.
The indictment said third-party lenders now hold around US$2.7bn in what it described as “fake” accounts receivables.
By 2025, the company was facing acute cash shortages, prompting efforts to refinance its debt or seek an acquisition, prosecutors said.
In April and May that year, the “inner circle” allegedly withheld information from funders, auditors and potential purchasers in an attempt to hide the poor financial health of the company.
In an internal email cited in the indictment, executives expressed concern that if other employees spoke to First Brands’ counterparties, they might “slip and say the wrong thing”.
In July, Patrick James allegedly directed a senior executive to respond to high-priority lender diligence requests by saying First Brands had no off-balance sheet financing involving special purpose entities, and that all related-party relationships were disclosed in its financial statements.
In reality, the company had incurred around US$2bn in undisclosed off-balance sheet debt through entities controlled by Patrick James, the indictment said.
First Brands’ refinancing bid ultimately failed when it could not provide prospective counterparties with the due diligence they sought, the indictment said.
The company, which has been under the control of restructuring officers since September, said the criminal charges relate to historical actions by former employees who are no longer involved in the management of the company.
First Brands “continues to conduct an independent review of historical business practices” and “intends to continue pursuing all available claims and causes of action against Patrick James, Edward James, and others to maximise value for the estate”, it said.
Patrick James’ spokesperson said he “is presumed innocent and denies these charges”.
“He built First Brands from nothing into a global industry leader and has always been devoted to the success of the company,” they said.
Edward James’ legal representative told CBS News: “Today, the government issued a long list of accusations, but has not produced a shred of evidence against him.”
