Jefferies CEO Rich Handler told investors on Thursday that the bank believes it was “defrauded” after being grilled over its exposure to First Brands Group’s bankruptcy, which the bank disclosed in an SEC filing. Handler’s comments followed an investor letter released by Jefferies on Sunday, revealing the bank’s stake in First Brands’ debt—originally thought to be as high as $715 million—is closer to $45 million, a figure it claims is absorbable and not threatening to Jefferies’ overall financial health. Nonetheless, the bank’s share price has plunged over 20% since the bankruptcy unfolded last month.

Handler, who said he did not see the First Brands bankruptcy as a “canary in the coal mine,” talked about First Brands and the wider business climate. “I’ll just say, this is us personally, we believe we were defrauded, okay, from a company. I personally talk to a lot of investors, a lot of CEOs, a lot of operating businesses. I think the environment is generally pretty darn good.” Handler added that he thinks “there’s a fight going on right now between the banks and direct lenders who each want to point fingers at each other and say, ‘It’s your fault.’ ‘No, it’s your fault.’ The fact of the matter is, the economy is generally good.” He noted, “It doesn’t feel like we’re on the edge of a default cycle, quite frankly, to me, and I’ve been on the edge of default cycles before.” It also doesn’t look to him like the climate in 2007, “when the world’s about to come to an end.” The canary in the coal mine, he added, is usually the entire financial sector, and he just doesn’t see that.

Handler’s statement comes amid growing public scrutiny. First Brands, a sprawling auto-parts conglomerate, collapsed with over $2 billion reportedly missing from its accounts and more than $10 billion owed to creditors, including some of Wall Street’s biggest firms.

In their letter, Handler and Jefferies president Brian Friedman strongly denied earning undisclosed fees and emphasized the bank was never aware of fraudulent activity at First Brands, stating: “We learned of the fraud allegations when the rest of the public learned.” Regarding the blow to the company’s financial position, they said they believe the “impact on our equity market value and credit perception … is meaningfully overdone, and we expect this to correct soon as the facts and range of outcomes are better understood.”

Regarding its previous relationship with First Brands, Jefferies said over the past 10 years, it only served as a financial advisor once (for an acquisition), and while it underwrote a $300 million loan in 2023, other financing it arranged in the past decade was on a best-efforts, not underwritten, basis. “We are aware of nine other banks being involved in acquisitions or loan arrangements for First Brands.”

Fallout spreads across Wall Street

The bankruptcy’s shock waves have unsettled broader financial markets, with other major lenders like JPMorgan reporting a $170 million charge-off tied to dealership company Tricolor in the quarter; it had no exposure to First Brands. “My antenna goes up when things like that happen,” JPMorgan CEO Jamie Dimon said of the First Brands bankruptcy. “And I probably shouldn’t say this, but when you see one cockroach, there are probably more. And so we should—everyone should be forewarned on this one.”

Multiple investigations into First Brands are underway, including a reported Justice Department probe into the mechanics of First Brands’ off-balance-sheet financing arrangements.​ First Brands founder and CEO Patrick James stepped down in the wake of the scandal, replaced on an interim basis by restructuring expert Charles Moore, whose priority is to stabilize operations and pursue asset sales to salvage residual value for creditors.​

Parallels to the infamous Enron collapse have not gone unnoticed. Jim Chanos, the short-seller who gained international recognition for helping expose Enron’s fraud in the early 2000s, is sounding the alarm over First Brands. In speaking with the Financial Times, Chanos flagged First Brands’ aggressive use of off-balance-sheet financing—a hallmark of Enron’s demise—and warned about the dangerous role of private credit, with more shoes set to drop in this matter.​ “I suspect we’re going to see more of these things, like First Brands and others, when the cycle ultimately reverses,” he said, “particularly as private credit has put another layer between the actual lenders and the borrowers.”​

Enron’s flawed accounting was also partially exposed by Fortune itself, with Bethany McLean posing a simple question in March 2001: “Is Enron overpriced?”

For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.