NEW YORK, Feb 25 (Reuters) – Jefferies Financial Group has been sued by investors who said the financial services firm defrauded them into investing in a fund linked to First Brands, the now-bankrupt auto parts supplier.
According to a complaint made public on Wednesday in a New York state court in Manhattan, Jefferies and its Point Bonita Capital trade finance fund falsely claimed to have had “cash dominion” over receivables it bought from First Brands, while the parts supplier was engineering what federal prosecutors have called a multibillion-dollar fraud.
Eugenia II Investment Holdings and Eugenia III Investment Holdings, both based in the British Virgin Islands, said they invested $25 million in Point Bonita, and were blindsided upon learning that First Brands had control of their money while it was double-pledging collateral and manipulating invoices.
The plaintiffs said they could have invested their money elsewhere but for Jefferies’ fraud, negligence and breach of fiduciary duty.
They are seeking at least $18.4 million, representing the difference between the current value of their investment and the amount they say they could have earned elsewhere.
“Jefferies unequivocally did not engage in fraud,” a Jefferies spokesman said in an email. “We will vigorously defend against these specious claims and expect to prevail on the merits.”
Bloomberg News reported the lawsuit earlier. Jefferies said in October that its Leucadia Asset Management unit, through Point Bonita, held about $715 million of receivables linked to First Brands. Leucadia is also a defendant in Eugenia’s lawsuit.
First Brands founder Patrick James and his brother Edward James, a former First Brands executive, were indicted last month in Manhattan on fraud and conspiracy charges over their company’s collapse. Patrick James was also charged with running a continuing financial crimes enterprise.
The brothers have pleaded not guilty.
(Reporting by Jonathan Stempel in New YorkEditing by Bill Berkrot)
Comments