Update on First Brands insolvency: UBS funds affected & parallels with Greensill

[Translate to English:] First Brands Insolvenz

Following the insolvency of First Brands Group, LLC (‘First Brands’), UBS is facing another wave of turmoil reminiscent of the Greensill Capital affair. The bank has begun liquidating several funds that are heavily exposed to First Brands. This poses significant risk of loss for (institutional) investors in the affected UBS funds.

According to press reports, the insolvency of First Brands is not leaving UBS's funds unscathed. UBS recently informed its clients that it would be liquidating several invoice finance funds, including one fund that was not exposed to First Brands.

Several funds of its subsidiary O'Connor are affected, in particular the “Working Capital Opportunistic” fund, which has caused annoyance among investors. According to press reports, they had been assured that the fund would not hold more than 20 per cent of its assets in a single position. However, UBS argues that no investment guidelines were violated, as 21.4 per cent of the exposure was “indirect”. By the end of the year, 70 per cent of the funds are to be liquidated. It remains to be seen how the liquidation will affect the sale of O'Connor to the US brokerage firm Cantor Fitzgerald.

UBS also plans to liquidate a “high grade” invoice finance fund by the end of the year, which was not involved in First Brands but invested in invoices from less risky companies. According to press reports, the reasons for this are growing concerns about the validity of First Brands' customer invoices and general nervousness in the market. The company is currently suing the former CEO and founder of First Brands for incorrect or falsified invoices, which are said to be responsible for the group's insolvency. Liabilities of $2.3 billion are at stake, a significant portion of which is said to be based on non-existent or falsified invoices. First Brands accuses its founder of transferring hundreds of millions of dollars to accounts controlled by him or affiliated companies between 2018 and 2025, thereby causing considerable damage to the group.

UBS also announced that the bank itself had no balance sheet exposure to First Brands and that only a small number of funds were affected by the insolvency.

The First Brands insolvency shows strong similarities to the Greensill scandal:

Supply chain financial products with risks in complex off-balance sheet structures.
Use of the Raistone financing platform, which has been severely affected by the insolvency. Notably, Raistone was founded by a former employee of Greensill Capital.
These parallels increase the relevance for investors who have already learned from the Greensill bankruptcy.

We have already reported on this in our blog post UBS funds and the First Brands insolvency: A new Greensill debacle for investors? | LUTHER Rechtsanwaltsgesellschaft mbH.

(Institutional) investors in the affected UBS funds must expect considerable risk of loss as a result of the First Brands insolvency. Even before the liquidation of the funds, the value of the affected UBS funds is likely to have fallen by 10 to 20 per cent, affecting several hundred million US dollars of investor funds. The loss in value is likely to increase further as a result of the liquidation. UBS emphasises that the affected funds were aimed at experienced investors and contained clear risk disclosures. They did not violate any investment guidelines. However, whether this is actually true can be critically questioned.

Similar to the Greensill case, aggrieved investors could assert claims for damages against advisors, brokers, fund managers or banks, particularly in the following cases:

Missing or incomplete risk disclosure
Lack of transparency
Conflicts of interest

Anyone affected by losses in value should seek legal clarification as to whether claims can be asserted. As experienced lawyers in the field of banking litigation, we offer you competent support in examining and enforcing your claims, drawing on our experience in successfully representing various investors in court proceedings for damages in the triple-digit million range in connection with the Greensill insolvency. Our close cooperation with LALIVE has proven to be extremely advantageous in this regard, enabling us to obtain information from the criminal files of the investigations initiated in Switzerland against various employees of the investment advisors and fund service providers involved.

If you have any questions regarding the assertion of possible claims for loss of value of investments in connection with the First Brands insolvency, please do not hesitate to contact our authors.

Dr Stephan Bausch, D.U.
Partner
Cologne
stephan.bausch@luther-lawfirm.com
+49 221 9937 25782

Dr Borbála Dux-Wenzel, LL.M.
Partner
Cologne
Borbala.Dux-Wenzel@luther-lawfirm.com
+49 221 9937 25100

Dr Marco Jerczynski
Counsel
Essen
marco.jerczynski@luther-lawfirm.com
+49 201 9220 0

Stephanie Quaß
Counsel
Frankfurt a.M.
stephanie.quass@luther-lawfirm.com
+49 69 27229 25782