A Ohio court heard a lawsuit Wednesday from Black Diamond, a hedge fund that owned $70 million of debt in car parts maker First Brands. The fund accuses audit firm BDO of negligence, arguing the auditor ignored red flags that should have revealed off‑balance‑sheet borrowings before the company collapsed last September. The filing seeks recovery equal to the fund’s investment and damages for alleged oversight failures.

First Brands filed for bankruptcy, prompting criminal charges against its founder and brother, who pleaded not guilty in February. An examiner testified that an executive believed BDO was chosen for being ‘less rigorous.’ Black Diamond cites BDO’s 2022 statement denying any off‑balance‑sheet debt and notes the firm issued five unqualified opinions from 2021 onward, which it says should have revealed the hidden liabilities.

BDO dismissed the claim as meritless, saying it adhered to professional standards and that auditors cannot be expected to uncover collusive fraud. The suit, the first since First Brands’ collapse, has rattled the private‑credit market and revived scrutiny of audit quality in distressed companies, underscoring investors’ reliance on rigorous financial oversight. Analysts warn that similar audit disputes could tighten credit terms for borrowers reliant on private funding.