First Brands filed for Chapter 11 bankruptcy in late 2025 following allegations of fraudulent accounting. Hedge funds including Marathon and Redwood invested over $1bn to keep the company running, but their bet failed. A federal court rejected the restructuring plan and ordered liquidation, raising only $200mn from asset sales.

The company's $9bn pre-bankruptcy debt is now worthless, and the bankruptcy loan is quoted at 18 cents on the dollar. Investigations revealed pervasive double-pledging of collateral and fabricated invoices. The company's founder faces criminal fraud charges, while other executives have pleaded guilty.

Payments to suppliers consumed nearly $2bn, and a judge blocked attempts to buy lawsuits against insiders. This outcome highlights the risks of distressed investing when fraud is involved.