Subprime Auto Lender CEO Charged for Double-Counting Collateral That Led to $1B Collapse

Daniel Chu, founder and CEO of subprime auto lender Tricolor, along with other senior executives, has been indicted for defrauding creditors through the double-counting of collateral, amounting to as much as $800 million (£596.3 million). The indictment, which was unsealed in a Manhattan federal court, alleges that Chu and Chief Operating Officer David Goodgame collaborated to conceal the fraud, while Chu personally benefited as the company collapsed.

According to US Attorney Jay Clayton, Chu orchestrated a scheme involving persistent falsehoods to lenders, which ultimately contributed to the company's downfall with losses exceeding $1 billion (£745.4 million). The collapse caused significant distress to banks, employees, investors, and clients. Both Chu and Goodgame were arrested; meanwhile, Chief Financial Officer Jerome Kollar and Finance Director Ameryn Seibold have pleaded guilty to fraud charges.

The federal case stems from Tricolor's sudden bankruptcy filing in early September, during which the company announced plans to liquidate its assets. One of its key creditors, Fifth Third Bancorp, reported discovering 'significant fraud' in the company's collateral records. At the time, Tricolor owed the bank around $200 million (£149 million) on an asset-backed finance loan.

At the point of filing for bankruptcy, Tricolor operated 65 locations across the United States and managed over 60,000 outstanding car loans, which were funded through credit advances from various lenders. In the fiscal years 2023 and 2024, the company generated approximately $1 billion in revenue and employed more than 1,500 staff.

Fraudulent Activities Began in 2018

The indictment reveals that Tricolor repeatedly pledged the same collateral to multiple lenders, presenting assets as near-worthless but sufficient to meet lending requirements. As of August, the company claimed to hold around $1.4 billion (£1 billion) of genuine collateral but had pledged $2.2 billion (£1.4 billion) worth of assets in total.

This pattern of deception likely began in 2018, amid mounting liquidity pressures. To address this, Chu directed Kollar to pledge delinquent loans to a bank in exchange for a revolving credit line of $25 million (£18.6 million). The scheme involved falsely categorising charged-off loans as performing assets, creating a fictitious portfolio company to transfer loans, and fabricating fake payments from employees.

Such practices continued over several years. Additional allegations include retaining sold vehicles on the borrowing base for certain creditors and submitting manipulated borrowing base reports. The executives are also accused of falsifying backup records to pass audits.

The indictment states, 'Under Chu's leadership, this activity became Tricolor's routine business practice and ultimately its means of financial survival.'

A Rapid and Inevitable Collapse

In August, concerns among lenders grew when an audit was delayed, and irregularities were identified in borrowing reports. As the company's financial situation deteriorated, Chu arranged for himself to receive substantial compensation, including a $15 million (£11.1 million) bonus scheduled for 2025. Recognising that insolvency was imminent, Chu instructed Kollar to pay him the final instalments of this bonus, which he received just weeks before Tricolor filed for bankruptcy.

It has also been reported that Chu used some of these funds to purchase a multi-million-pound property in Beverly Hills shortly before the company's demise. Leading up to the collapse, Tricolor dismissed around 1,000 employees. The law firm handling the bankruptcy proceedings stated it no longer represents the company.

At the time of its collapse, Tricolor and its affiliates had issued approximately $5 billion (£3.7 billion) in auto loans and owed major lenders over $900 million (£670.9 million). The fallout from the collapse contributed to a sharp decline in regional bank stocks in October.

Commenting on the case, JPMorgan Chase CEO Jamie Dimon remarked: 'When you see one cockroach, there are probably more. Everyone should be forewarned on this one.'

Chu now faces charges that could see him imprisoned for life, including one count of Continuing Financial Crimes Enterprise.