The U.S. Department of Justice has initiated an inquiry into the sudden bankruptcy of First Brands Group, an auto supplier that has reportedly left investors and creditors facing potential losses amounting to billions of dollars. The investigation is being conducted by the U.S. attorney’s office for the Southern District of New York, which specializes in complex white-collar cases.
Sources indicate that the probe is currently in its preliminary stages, described as a fact-finding mission prompted by the company’s recent filing for bankruptcy protection, merely less than two weeks ago. As the details surrounding First Brands’ financial situation remain murky, this investigation aligns with standard practices where federal prosecutors often seek to clarify circumstances surrounding significant financial discrepancies.
It is important to note that such inquiries do not inherently indicate any wrongdoing; the threshold for initiating them is relatively low, and they may not lead to formal charges or further legal actions. Both First Brands and the Department of Justice have declined to provide comments, while the SDNY has not responded to requests for additional information.
The situation escalated dramatically late Wednesday when one of First Brands’ largest creditors asserted that around $2.3 billion had “simply vanished” amidst the company’s unexpected failure. This creditor has called for an independent investigation into the company’s dealings leading up to the bankruptcy, expressing concerns about the decisions made by those who might be implicated in its financial mismanagement.
In an emergency petition, the counsel for Raistone, which arranged some of the off-balance sheet financing for First Brands, stated that “the debtors should not be permitted to appoint the very parties that will investigate their own potential misconduct.” In response to the scrutiny, First Brands has appointed two independent directors tasked with examining the funds and structures that underpinned the company’s operations, particularly those involving complex off-balance sheet vehicles.
First Brands, a manufacturer known for producing windshield wipers and fuel tank pumps, had relied heavily on a network of financiers to sustain its operational costs and financial maneuvers, including numerous acquisitions. During a recent bankruptcy hearing, a lawyer for the company stunned attendees by revealing that of the approximately $2 billion raised through a practice known as “factoring” — an off-balance sheet invoice financing method — there is nothing remaining. “We don’t have it,” the lawyer stated, adding that only $12 million is available in the bank account at present.
The fallout from First Brands’ collapse has attracted attention from notable Wall Street entities, including the investment bank Jefferies, Swiss-banking group UBS, and hedge fund Millennium Management. As more details emerge regarding the company’s finances and operations, stakeholders and the broader financial community are left grappling with the implications of this major corporate failure.
