Welcome to the Daily 5 report for Thursday, Oct. 16.
The sudden Chapter 11 bankruptcy last month of the parent company for aftermarket parts brands such as Trico wiper blades and Fram oil filters is emerging as a multibillion-dollar financial scandal.
First Brands Group can't account for $2.3 billion in off-balance sheet financial transactions, according to several reports. The U.S. Bankruptcy Court trustee and a major creditor are demanding an independent investigation, raising serious legal questions about what led to the company's failure.
According to a Bloomberg report today, the U.S. trustee argued in court filings that "serious allegations of fraud, dishonesty, incompetence, misconduct, or mismanagement" justify a quicker-than-normal process to appoint a bankruptcy examiner in First Brands' insolvency case. The trustee asked for an expedited hearing on the matter Oct. 29.
Coincidentally, that's the same date as the 1929 "Black Tuesday" crash on Wall Street that signaled the beginning of the Great Depression.
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The federal bankruptcy judge presiding over the case in Houston must still rule on the requests.
Wall Street firms are attempting to size up their exposure to the company, Bloomberg reported. A fund controlled by a unit of Jefferies Financial Group Inc. has about $715 million invested in receivables due by First Brands' customers, the story said.
The Wall Street Journal reported on Jeffries' involvement in the case, saying the firm played important roles with First Brands through both its investment banking and asset-management divisions.
So far, the only major damage incurred by the auto industry over this scandal seems to be reputational. Customers are still getting their parts.
But this case, along with the recent collapse of automotive subprime lender TriColor, are both high on the Wall Street corruption radar. JPMorgan Chase CEO Jamie Dimon this week addressed both cases, saying he expects "cockroaches" to be discovered.
"When you see one cockroach, there are probably more," Dimon said of the TriColor case. "Everyone should be forewarned on this one. ... First Brands I'd put in the same category."
Meanwhile, there's plenty of other types of crime faced by automakers — notably cybercrime.
As Molly Boigon reports, automotive software developers think cybersecurity vulnerabilities are the biggest risk to the successful rollout of software-defined vehicles in the next five to 10 years, according to a global Oct. 14 survey by QNX.
That's it for now. If you want to view this story in your browser, click here.
— Philip Nussel, online editor
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