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The US Department of Justice has opened an inquiry into the collapse of bankrupt auto supplier First Brands Group, as federal prosecutors look to untangle how investors and creditors have been left with billions of dollars in potential losses, according to people familiar with the matter.
The probe is being led by the US attorney’s office for the Southern District of New York, the Manhattan unit that often handles large, complex white-collar cases, the people said.
The inquiry is in its earliest stage, with one person describing it as a fact-finding mission, given the company filed for bankruptcy protection less than two weeks ago, and many of the details about First Brands’ finances remain unclear.
It is not unusual for prosecutors to open investigations when there are public reports of large financial losses stemming from alleged irregularities, and the bar for doing so is low. Such probes do not necessarily mean any wrongdoing has occurred and may not lead to charges being filed or cases being brought.
First Brands and the DoJ declined to comment. The SDNY did not immediately respond to requests for comment.
Late on Wednesday one of the largest creditors to First Brands alleged that as much as $2.3bn had “simply vanished” as part of the company’s abrupt failure.
That lender, one of several who had provided off-balance sheet financing relying on that collateral, is now pushing for an external investigation into the company’s actions leading up to the bankruptcy.
“The debtors should not be permitted to appoint the very parties that will investigate their own potential misconduct,” the counsel for Raistone, one of the companies that helped arrange off-balance sheet financings for First Brands, wrote in an emergency petition last night.
First Brands has separately appointed two independent directors to probe how the company financed itself through these opaque off-balance sheet vehicles. The company, which makes windshield wipers and fuel tank pumps for cars, had relied on a web of financiers to fund its operations and a wave of acquisitions.
Asked at a bankruptcy hearing this month where roughly $2bn raised by First Brands through “factoring” — a type of off-balance sheet invoice financing — was held, a lawyer for the company said, “we don’t have it”, and “there’s $12mn in the bank account today. That’s it. There’s nothing else.”
Some of the biggest names on Wall Street have been drawn into the debacle, including divisions of the investment bank Jefferies and Swiss-banking group UBS, as well the hedge fund Millennium Management.
Additional reporting by Stefania Palma in Washington
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