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Ex-First Brands Officer Says He Was Unaware of Alleged Fraud
Michael Baker Says Founder Patrick James Concealed Alleged Fraud, Court Filing Says
Key Takeaways:
- Former First Brands chief strategy officer Michael Baker asked a judge April 6 to dismiss a civil lawsuit blaming him for the auto-parts supplier’s collapse.
- His filing says founder Patrick James and insiders concealed fraud and used Baker’s reputation, while prosecutors charged the James brothers and allege $2.3 billion off-balance-sheet financing.
- First Brands remains in Chapter 11, has shuttered 17 sites and cut 4,000 jobs, and is selling remaining factories after lenders declined further funding.
First Brands Group’s former chief strategy officer asked a judge to dismiss a civil lawsuit that blames him in part for the auto-parts supplier’s collapse, arguing that founder Patrick James and his brother, Edward, concealed the alleged fraud that brought down the company.
Michael Baker, who joined First Brands after practicing corporate finance in New York, said in an April 6that Patrick James and other insiders used his reputation and experience to build relationships with lenders.
Federal prosecutors have uncovered evidence that James ‘and his inner circle’ kept separate books and limited access to the company’s financial information, and that Baker was not aware of it, according to the filing. Prosecutors charged Patrick and Edward James with fraud, and two other executives pleaded guilty.
A spokesperson for Patrick James said in an email April 9 that former First Brands officers had a duty to raise concerns at the time and are now trying to “shift responsibility in a manner that serves their own interests.”
“What has happened to the business of First Brands is a tragedy, but the narrative that the blame for this should fall on Patrick James is false,” his spokesperson said, adding that James looks forward to presenting his case in court.
Baker resigned on Sept. 25, a day after First Brands filed for Chapter 11, saying in court papers that he stepped down when it became clear that “significant information was being withheld from him.” He joined First Brands in 2021 after serving as a partner at Paul Hastings. He previously worked at Shearman & Sterling LLP.
RELATED:Ex-First Brands Finance Exec Details Fraud in Guilty Plea
“The lenders who extended credit to First Brands knew Mr. Baker’s name and reputation on Wall Street as a Chambers-ranked leveraged finance partner at two leading international law firms; they knew he would not sacrifice a decades-long career of credibility for a salary far less than what he would have been earning as a law firm partner during the same period,” his lawyers said in the filing. “His genuine belief in what he was representing was necessary to his willingness to work for First Brands. The alleged scheme therefore depended structurally on Mr. Baker’s unawareness, not least so that those involved could continue benefitting from Mr. Baker’s reputation in the marketplace.”
The lawsuit accuses Baker of breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and civil conspiracy tied to his role in helping structure special-purpose vehicles First Brands used to secure $2.3 billion in off-balance-sheet financing that the business could not repay.
Baker’s lawyers said there is nothing inherently improper about using SPVs and that many companies use them to obtain financing. The complaint does not contain evidence or factual allegations showing Baker did anything wrong “or knew anything in those documents was wrong” while he worked at First Brands, they said.
First Brands has struggled in bankruptcy, shuttering 17 sites and firing 4,000 workers earlier this year. The company has liquidated some business units and is trying to sell its remaining parts-making factories after lenders refused to put more money into the case to overhaul the business.
