The $2.3 Billion Vanishing Act: First Brands and the Factoring Fraud That Shocked Wall Street

When First Brands Group, a major auto parts supplier, filed for bankruptcy on September 28, 2025, Wall Street expected a messy restructuring. What they got instead was a financial crime thriller involving $2.3 billion in factoring deals that have "simply vanished", according to a court filing from one of the financial firms involved. Furthermore, there is now a DOJ investigation into a multibillion-dollar company failure.

First Brands' financing scheme uncovered

One of First Brands' financial partners made an emergency court filing calling for an independent investigation into $2.3 billion tied to the company that had "simply vanished". That partner was Raistone, a working capital platform that facilitated First Brands' short-term borrowing and derived 80% of its revenue from First Brands.

The sheer scale is staggering. Court filings reveal First Brands Group companies owe around $6.1 billion in on-balance sheet debt, $2.3 billion in off-balance sheet financing, $800 million in supply chain finance liabilities, and a further $2.3 billion in factoring liabilities. It's that last number, $2.3 billion in factoring liabilities, where the alleged fraud lies.

First Brands Group, in its Chapter 11 bankruptcy filing, did cite tariffs as one of the factors contributing to its financial distress. The company specifically blamed "geopolitical uncertainty and headwinds from newly imposed tariffs" for unexpected expenses that strained the business. One court filing detailed that new U.S. government tariffs of up to 73% were imposed on certain imported goods in April 2025, leading to an incurred cost of approximately $220 million in total tariff-related costs, which included spending to pre-buy inventory.

What is Factoring?

To understand the scandal, you need to understand factoring. It's a straightforward financial tool:

1. A company delivers goods and creates invoices for customers

2. Instead of waiting 30-90 days for payment, the company sells these invoices to a "factor" (a lender)

3. The factor pays 70-90% of the invoice value immediately

4. When the customer pays, the factor keeps a fee and returns the remainder

It's simple, legal, and widely used for cash flow management. The invoice becomes the lender's property, they own the right to collect that payment.

The problem: What happens when the same invoice gets sold to multiple lenders?

Double-Dealing Factoring

This is where First Brands allegedly crossed from aggressive financing into potential fraud. An investigation into the company's position is being carried out by a special committee of independent directors to determine whether receivables had been turned over to third-party factors upon receipt, and whether the same receivables may have been factored more than once.

Imagine selling your car to three different buyers, collecting payment from all three, and giving the keys to none. That's essentially what investigators suspect happened here, but with billions in customer invoices from companies like Walmart, AutoZone, and NAPA.

Jefferies said its Leucadia Asset Management unit has a $715 million exposure to First Brands through its Point Bonita Capital Fund. The $715 million exposure is invested in receivables due from a number of companies, including Walmart, Autozone and NAPA. These lenders believed they owned exclusive rights to collect those payments. But if the same invoices were sold to other lenders, nobody truly owns them.

Any funds received from receivables that have been factored will be segregated pending the results of the investigation, meaning whatever money can be recovered is frozen until courts determine who actually owns what.

Who Got Burned?

The fallout has hit some of Wall Street's biggest names:

Jefferies Financial Group: $715 million exposure through Point Bonita Capital Fund, plus a separate $48 million exposure through its Apex Credit Partners business. The Point Bonita fund had a quarter of its portfolio tied to First Brands.

UBS O'Connor: More than $500 million in overall exposures, with the UBS Working Capital Finance Opportunistic Fund having an estimated 30% exposure through invoice financing. The O'Connor hedge fund unit owned by UBS is facing such significant losses that Cantor Fitzgerald is now trying to renegotiate the terms of its acquisition of the business.

Millennium Management: The $79 billion multi-strategy hedge fund took a $100 million writedown.

Raistone: The company has already cut roughly half of its employees after losing its biggest revenue source.

Some of the debt has plunged to around 36 cents on the dollar, with investors facing hundreds of millions in losses. For every dollar lenders thought they'd recover, they might get 36 cents, if they're lucky.

The DOJ Steps In

The U.S. Department of Justice has launched an inquiry into the collapse of bankrupt auto parts maker First Brands Group, and the company has separately appointed a special committee of independent directors to investigate its off-balance sheet financing arrangements and whether its invoices were factored multiple times.

The Department of Justice has opened a probe into the collapse as prosecutors seek to understand how creditors were left with billions in potential losses, and whether crimes were committed.

If the double-factoring allegations prove true, this isn't just a bankruptcy, it's wire fraud, bank fraud, and possibly securities fraud on a massive scale.

The Man Behind the Curtain

At the center sits Patrick James, the elusive owner and CEO. The few public records that mention James indicate that he grew up in Malaysia and came to the US to attend the College of Wooster in Ohio.

James operated through a complex web of entities. He began acquiring auto parts manufacturers in Ohio, operating initially through various holding companies. The company, which was then known as Crowne Group, began tapping the syndicated loan market in 2014 with $380 million in loans. In 2020, it was rechristened as First Brands.

The company grew through aggressive acquisitions, eventually operating 26,000 employees across six continents with about $5 billion in annual revenue. But much of this growth was fueled by increasingly opaque financing arrangements.

Several investors who considered lending decided to stay away after unearthing previous litigation or hitting up against the dearth of information about the CEO. Public records show that James had taken out mortgages for homes in suburban Cleveland and set up a foundation that gave to churches and schools in the area, but he left almost no trace of his involvement on the internet.

Lakshmi Ganapathi, the founder of Unicus Research, which conducts forensic investigations of corporate controversies, concluded that the CEO had taken steps to obscure his online footprint and personal residence. "It seems like he went above and beyond to hide himself and his assets. All of this should be a huge red flag for investors".

Red Flags Ignored

Looking back, warning signs were everywhere:

• Zoom calls where the owner kept his camera off; angry pushback from his brother when investors asked for invoices to back up their loans; frequent late payments to suppliers; and whispers of large off-the-books financing arrangements

• In 2011, a unit of Fortress Investment Group sued some of the companies and claimed that they had obscured James' controlling interest and the fact that all the companies "share employees and management, do not have separate books and records, have the same address in Solon, Ohio, and are grossly undercapitalized"

• First Brands undertook a global refinancing effort ahead of its bankruptcy, but this process was paused in August after potential lenders requested a quality of earnings report

• The company paid what amounted to an interest rate of around 30% for some of its short-term borrowing, a rate that should have raised immediate red flags about the company's creditworthiness

The Collateral Chaos

Beyond the missing factoring money, there's another problem: Advisors have recently discovered that inventory pledged as security to Ohio-headquartered Evolution Capital Partners "may have been commingled" with collateral securing a separate asset-backed loan facility.

When the same physical inventory is pledged to multiple lenders, bankruptcy becomes a nightmare. Who owns what? Which lender has priority? These questions will take years to resolve in court.

Why This Matters Beyond Wall Street

The First Brands collapse isn't just about hedge funds losing money, it exposes systemic problems in private credit markets:

Lending standards have collapsed. Orlando Gemes, founding partner and chief investment officer at Fourier Asset Management, warned that "there's very clear evidence that lending standards in the leveraged finance market are the weakest they've ever been".

Transparency is gone. Patrick Ghali, co-founder and managing partner at Sussex Partners, noted: "In public markets, you can look on your screen and see where a company trades. In private markets you don't have that. There are some real risks".

This isn't unique. "This is not a canary in the coal mine, it's not the first, and it's not the last," Gemes said of the First Brands episode.

The debacle is already drawing comparisons to both the 2008 blow-up and the Greensill Capital collapse in 2021, owing to the presence of complex financial engineering, high-risk borrowing and trade receivables assets.

What Happens Next

The DOJ investigation will determine whether criminal charges are warranted. The bankruptcy proceedings will attempt to untangle who owns what among billions in disputed claims.

As Ghali warned: "There are a lot of people who probably don't remember 2008 as it was almost 20 years ago, but there are lessons to be learned from it... There is so much money that has gone into that space, and so much money that may still go into that space, and that's a little scary".

For now, billions remain missing, lenders are scrambling to recover pennies on the dollar, and federal prosecutors are asking the obvious question: How did so many smart people on Wall Street fund what appears to be one of the largest factoring frauds in history?

The answer may reveal uncomfortable truths about an entire corner of modern finance.