"As long as everything works nobody asks questions," said Jim Chanos, the short-seller who predicted Enron's collapse. "It isn't until something stumbles that people say, 'Wait a minute… this doesn't make any sense.'"
That moment arrived for First Brands Group—the auto parts conglomerate including well-known makers of engine filters, windshield wipers, brakes, and more—when it hit the wall in September 2025.
The company's Chapter 11 filing revealed billions in hidden liabilities, leaving creditors asking one haunting question: Where did the money—and the invoices—go?
Jefferies Financial Group CEO Rich Handler said that the bank was "defrauded" by the auto supplier, who is currently undergoing a criminal investigation conducted by the U.S. Department of Justice.
This wasn't just a story of mismanagement. It was a story about trust without verification, and what happens when private debt grows faster than the systems that secure it.
The Setup: How the Machine Worked
First Brands wasn't a lender—it was a manufacturer. But it borrowed like a bank.
To fund acquisitions, the company layered together:
• An asset-based revolver from Bank of America for working capital.
• Term loans and notes from private-credit funds.
• Off-balance-sheet factoring and supply-chain finance to turn receivables into quick cash.
The company also serviced its own receivables, collecting payments from customers while reporting to lenders what had been sold or pledged.
When liquidity tightened, that control became the weak link. Investigators now believe some invoices were financed multiple times, while collections didn't flow back into the right accounts.
The Department of Justice and a court-appointed committee are investigating, but already, the case has shaken confidence across private credit markets.
Invoice Factoring 101
Factoring lets a company turn unpaid invoices into cash immediately.
Say a business has $1 million due in 60 days—it sells those invoices to a factor, which advances about $900,000 today and takes responsibility for collecting payment. Once the customer pays, the factor remits the balance minus fees.
The model is sound—but fragile.
When invoices are duplicated, inflated, or pledged to multiple lenders, the same asset supports multiple loans. When cash doesn't flow where it should, trust collapses.
That's exactly the dynamic now under scrutiny in the First Brands case.
Factoring in the U.S. vs. Latin America: Who's Really Safer?
It's counterintuitive—but the U.S. system is often riskier than the frameworks emerging across parts of Latin America.
United States: Fragmented and Reliant on Trust
Factoring in the U.S. operates under UCC Article 9, which treats receivables as secured collateral. Lenders must file UCC-1 financing statements to publicly declare interest in an asset—but that's where the system stops.
There's no centralized collateral registry, no real-time data sharing between lenders, and no standardized invoice verification. Every bank, fund, and factoring platform maintains its own records.
That means:
• A single invoice can be pledged to multiple parties before anyone notices.
• Borrowing bases are often updated monthly or quarterly—too slow for fast-moving liquidity crises.
• Servicers (like First Brands) can manipulate or delay data with little immediate consequence.
To prevent risks in the U.S., lenders must rely on a patchwork of manual controls: frequent borrower audits and reconciliations, invoice sampling and third-party verification, cash dominion or lockbox accounts to monitor collections, legal filings to perfect liens—often days or weeks after funding.
In short, the system assumes honesty first, and audits later—a setup that works only until it doesn't.
Latin America: Regulation Through Digitization
Across Latin America, paradoxically, structural reforms and electronic invoicing mandates have made factoring more traceable.
• Brazil's "duplicata eletrônica" system ties each invoice to a registered transaction ID, verified through tax authorities and clearinghouses.
• Mexico's CFDI (Comprobante Fiscal Digital por Internet) requires every invoice to be issued through a government-certified portal, creating a public ledger of receivables.
• Chile and Colombia have introduced electronic factoring registries, making double pledging far harder.
These systems integrate tax, legal, and financing data in a way the U.S. still hasn't.
While Latin America's enforcement can be slow, its data architecture is years ahead—a paradoxical advantage built out of necessity to curb historic fraud and money laundering.
Real-World Cases of Factoring Fraud
Total losses from factoring and receivables fraud exceed $10–15 billion over the past two decades, concentrated in a handful of major collapses from Europe to the Americas.
Greensill Capital Collapse (2021)
Greensill Capital, a major supply-chain finance firm, imploded after revelations that it issued billions in nonexistent invoices. Several companies discovered receivables booked in their names without consent.
Impact: Billions in losses, bankruptcy of affiliated firms, and sweeping scrutiny over private debt transparency.
Wirecard Scandal (2020)
German fintech Wirecard fabricated invoices to inflate revenue and secure loans, creating €1.9 billion in phantom assets.
Impact: A global accounting scandal that shattered trust in fintech auditing and regulatory oversight.
TransCare Corporation (2016)
The U.S.-based ambulance provider sold the same invoices to multiple lenders to plug liquidity holes.
Impact: Bankruptcy, lawsuits, and heightened suspicion of smaller U.S. factoring markets.
BHS Electronics & Commerzbank (2008)
BHS defrauded Commerzbank by presenting falsified invoices for non-existent shipments.
Impact: Heavy losses for the bank and a cautionary tale for invoice verification controls in traditional trade finance.
Each case illustrates a recurring theme: factoring fails not because of the product, but because of the opacity around ownership and verification.
What Likely Went Wrong at First Brands
• Duplicate Pledging: The same invoice financed across multiple credit lines.
• Servicer Control: Borrower-controlled collections obscured cash tracking.
• Slow Audits: Monthly reconciliations masked shortfalls until liquidity ran out.
• Fragmented Data: Different lenders, different ledgers—no shared view of reality.
The result was an illusion of liquidity—receivables that existed everywhere and nowhere at once.
The Bigger Picture: Private Credit's Data Problem
Private credit has exploded from $400 billion to more than $1.5 trillion over the past decade, but the infrastructure behind it remains primitive.
Unlike banks, private lenders lack: shared collateral registries, standardized invoice verification, and real-time data reconciliation.
In this environment, borrowers control the narrative, and lenders are forced to believe it—until they can't.
Where Vaas Comes In: Visibility as a Control Layer – at the atomic level
If Vaas had been verifying First Brands' receivables (atoms), the red flags would've surfaced early.
Our platform builds the connective tissue missing in traditional finance—a shared digital truth that tracks every receivable (atom) from issuance to repayment.
How Vaas Prevents Factoring Fraud
• Digitized, Immutable Invoices: Each invoice is verified at the individual document level and checked against UCC filings and other data sources, preventing reuse or duplication.
• Shared Collateral Registry: All participants—borrowers, lenders, and servicers—see a live record of pledged and released assets.
• Automated Cash Matching: Payments are traced directly to specific invoices via controlled accounts. No reconciliation delays.
• Continuous Monitoring & Alerts: Duplicate pledges, abnormal borrowing spikes, and late payments trigger instant warnings.
• Tamper-Proof Audit Trail: Every pledge, payment, and release is timestamped and verifiable for regulators and investors alike.
With that infrastructure, "missing receivables" wouldn't be a mystery—they'd be visible, traceable, and accountable in real time.
The Takeaway
The First Brands collapse isn't just another bankruptcy—it's a preview of a larger systemic weakness: private credit without shared visibility.
The fix isn't tighter covenants—it's smarter infrastructure.
At Vaas, we're building exactly that: a real-time, shared digital ledger where every asset is verifiable from creation to repayment.
Because when the music stops, every lender should already know which invoice they own—and where the money went.
