DOJ Probes First Brands Bankruptcy After Billions Vanish
The U.S. Department of Justice is investigating the collapse of First Brands Group after billions of dollars disappeared amid allegations of debt rehypothecation and accounting fraud.
The United States Department of Justice has launched a criminal investigation into the collapse of First Brands Group, an auto-parts supplier that filed for Chapter 11 bankruptcy in Texas on September 28. Federal prosecutors from the Southern District of New York are probing the disappearance of between $1.9 billion and $2.3 billion in cash, following reports of accounting irregularities and the use of opaque off-balance-sheet financing.
First Brands, which manufactures fuel tank pumps and windshield wipers, cited liabilities between $10 billion and $50 billion in its filing. Creditors have described the situation as a debt rehypothecation nightmare, alleging that the company sold the same invoices multiple times and engaged in aggressive, debt-fueled expansion. These practices caused the company's debt to crash from par value to the teens within hours as the true scale of liabilities emerged.
Investment firms have suffered heavy losses. Jefferies Financial Group disclosed that its Point Bonita Capital fund holds $715 million in receivables from First Brands, with a total direct exposure of $161 million. Jefferies is under particular scrutiny after preparing a $6 billion refinancing for the supplier in August, and its stock has fallen 30% over three weeks. Other major exposed creditors include UBS Group AG, Raistone, Nomura, and SouthState Bank. An independent investigation is currently examining whether First Brands misdirected payments or engaged in double-factoring.
