Idiot Lights
Wall Street lenders didn’t check the dashboard before First Brands blew the engine
“Ambition is a dream with a V8 engine.” – Elvis Presley
Patrick James built and bankrupted auto parts giant First Brands Group, deploying some of the most obvious accounting tricks in the book.
He was finally charged for a multibillion-dollar fraud on Wednesday, and his brother, too. What should also be under indictment are some shockingly reckless Wall Street lending practices.
Prosecutors allege that the James boys and their Ohio-based conglomerate pledged the same invoices again and again as loan collateral. Debts were hidden Enron-style – off the balance sheet – and money was spun in tight circles to look like revenue, according to the indictment.
We are talking about UBS, Blackstone, Jeffries Financial Group and Santander collectively loaning billions to this clunker. Then there’s Raistone Capital, a factoring giant that purchased or financed invoices from First Brands and its subsidiaries – and many, many others.
This was a company with $5 billion in annual sales. Prosecutors said it only had $12 million in its bank accounts when it filed bankruptcy on September 29, 2025 – and more than $9 billion in liabilities.
Since then, bankruptcy lawyers, forensic accountants and Justice Department investigators have been sifting through the wreckage looking for a missing $2.3 billion.
Read More: Parts Is Parts (Business Blunders)
The real mystery is no longer where the money went. It’s how so many allegedly brilliant financiers failed to notice it wasn’t there.
James, 61, and his brother Edward, 60, each face nine felony counts, including running a continuing financial crimes enterprise, wire fraud, bank fraud, conspiracy to commit wire fraud and conspiracy to commit money laundering.
A former company executive, Peter Brumbergs, pleaded guilty to his role in the scheme and is cooperating with prosecutors.
“Patrick James is presumed innocent and denies these charges,” reads a statement released to media. “He built First Brands from nothing into a global industry leader and has always been devoted to the success of the company. ”
James was a rollup artist, acquiring 25 auto-parts brands over the past few years, including Fram oil filters, Autolite spark plugs and ANCO wiper blades. He paid himself lavishly. And before First Brands filed bankruptcy, he diverted hundreds of millions of dollars into his personal accounts, prosecutors allege.
This is what rollup artists too often do.
Mechanics once called dashboard warning signals “idiot lights.” They’re the automotive industry’s cheap substitutes for gauges and the last defense before an engine seizes.
First Brands had plenty of them.
So did Tricolor Holdings, a once-prominent subprime auto lender and used car dealer, that also filed bankruptcy in September, jilting big lenders such as JPMorgan Chase, and also resulting in criminal charges.
Read More: Going All Enron On Them
“When you see one cockroach, there’s probably more,” JPMorgan Chase Jamie Dimon warned in October. “Everyone should be forewarned on this one.”
This is not a good sign for our debt-ridden financial system. It doesn’t speak well for the bankers behind the wheel. If this can happen at an auto parts supplier, it could happen anywhere.
