First Brands Creditor Sues Auditor BDO Over Missed Red Flags

A lender that owns First Brands Corp. debt sued auditor BDO USA P.C., alleging it failed to detect problems at the auto parts supplier before it collapsed into bankruptcy and federal prosecutors accused founder Patrick James of fraud.

Funds managed by Black Diamond Capital Management said in an April 29 lawsuit that BDO’s audits did not comply with generally accepted auditing standards because they missed “numerous” risk factors, including First Brands’ extensive use of factoring and hundreds of millions of dollars in transfers to James’ personal trust.

The Black Diamond affiliates said they relied on BDO’s audits when it ...