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First Brands Group has sued the brother of its founder and its largest creditor, Onset Financial, for allegedly conspiring “in an unlawful scheme to defraud creditors out of billions of dollars”.
The Ohio-based car parts maker, which crashed into bankruptcy in September sparking billions of dollars in losses for Wall Street groups, filed a lawsuit in a Houston bankruptcy court on Friday against the Utah-based leasing firm and Edward James, a former First Brands executive and brother of Patrick James, the company’s founder.
The bankrupt company alleged Onset worked with Edward James on dozens of sale-leaseback transactions, providing loans to First Brands that carried interest rates as high as nearly 200 per cent. First Brands’ legal advisers estimated $3.7bn worth of debt was foisted on to the company between 2022 and 2025 that were worth no more than $1.7bn.
First Brands also contended that Edward James blocked others at the company from attempting to negotiate better terms with Onset and that he invested nearly $150mn alongside Onset in the transactions. In one year, First Brands alleged he earned 80 per cent on his investment at the expense of the company.
“Onset and Edward James made a deal — James would work against [First Brands] as Onset’s secret partner, and together they would rig scores of supposed “contracts” between [First Brands] and Onset to enrich themselves at everyone else’s expense,” First Brands alleged in the lawsuit, while claiming that the two parties had transferred $2.9bn out of the company.
Utah-based Onset, a hitherto little-known leasing specialist that extended billions of dollars in financing to First Brands, emerged last year as the car parts maker’s largest known creditor. Onset provided leases backed by the company’s inventory through “off-balance sheet” special-purpose vehicles and has a $1.9bn claim against the First Brands estate.
First Brands has now alleged that these lease transactions “were in fact disguised loans” and that Edward James had invested nearly $150mn alongside Onset, “in the hopes of extracting” nearly $280mn.
It also claimed Edward James and Onset “implemented a scheme to disguise billions of dollars of debt”.
“Before the music stopped, Onset (and its partner Edward James) obtained over $2.3bn in payments in connection with the SPV financing transactions,” First Brands’ lawyers wrote, adding that it had brought the lawsuit to “return the conspirators’ mountain of ill-gotten cash”.
Dealings between Edward James and Onset have already come under scrutiny. Earlier this week, a committee of First Brands’ unsecured creditors accused the two parties of participating in a “staggering fraud and kickback scheme”.
Onset’s lawyers last year argued that Edward James’s investments in its deals gave the lender “further confirmation” the transactions were “genuine”. It has previously denied allegations of fraud from other parties and claimed it is itself a victim of a fraudulent scheme orchestrated by Patrick James.
Onset said in a statement on Friday: “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.”
It added: “Onset will not be bowed as it vigorously asserts its claims and defends against these baseless allegations.”
First Brands last year sued Patrick James, alleging he engaged in “fraudulent conduct” at the now bankrupt automotive parts supplier. He has denied allegations of fraud.
Lawyers for Edward James did not immediately respond to requests for comment.
