Senior executives at the now-bankrupt subprime auto lender, Tricolor Holdings, have been formally charged over their alleged involvement in what authorities describe as a years-long, "systematic fraud" scheme.
The Core of the Allegations
In an indictment unsealed in a Manhattan federal court on Wednesday, Daniel Chu, the company's founder and former chief executive, was charged with directing multiple executives since 2018 to defraud investors and lending institutions. US Attorney Jay Clayton stated that fraud became an integral part of Tricolor's business strategy, with the company repeatedly lying to banks and other credit providers.
The alleged methods included falsifying auto-loan data and a practice known as 'double pledging' collateral, where the same asset was used to secure multiple loans. The indictment claims the resulting billion-dollar collapse harmed banks, investors, employees, and customers alike.
Concealment and Collapse
The full scope of the alleged deception came to light this summer when lenders confronted executives, including Chu, about the company's collateral. Prosecutors allege that in a series of secretly recorded phone calls, Chu "concocted plans to conceal or explain away the fraud." When these efforts ultimately failed, the indictment states that Chu extracted over $6 million from the struggling company.
According to the court documents, Chu received two payments from Tricolor totalling $6.25 million, some of which he allegedly used to purchase a multi-million-dollar property in Beverly Hills, California. The company filed for Chapter 7 bankruptcy in September 2025, owing over $900 million to its largest lenders.
Wider Implications and Fallout
Tricolor's bankruptcy and the subsequent fraud charges have intensified scrutiny on the private credit sector and its influence within the global economy. The case highlights significant risks within specialised lending markets. A defence lawyer for Chu did not immediately return a request for comment on the charges.
The legal proceedings will now move forward, focusing on the alleged actions that prosecutors say led to one of the most significant fraud cases in the recent history of auto finance.
