Executives at bankrupt subprime auto lender Tricolor Holdings have been charged over their alleged roles in a years-long scheme described by US prosecutors as a “systematic fraud”. The charges were announced on Wednesday in an indictment unsealed in Manhattan federal court.
Daniel Chu, the company’s founder and former chief executive, was charged with directing multiple executives since 2018 to defraud investors and lending institutions. The alleged fraud included falsifying auto-loan data and “double pledging” collateral, where the same assets were used to secure multiple loans.
“As alleged in the indictment, CEO Daniel Chu was the leader of an elaborate scheme to defraud creditors of Tricolor,” said Jay Clayton, a US attorney. “At his direction, Tricolor repeatedly lied to banks and other credit providers. Fraud became an integral component of Tricolor’s business strategy. The resulting billion-dollar collapse harmed banks, investors, employees and customers.”
The scope of the alleged fraud came to light this summer when lenders confronted executives, including Chu, about Tricolor’s collateral. According to the indictment, Chu “concocted plans to conceal or explain away the fraud” in a series of secretly recorded phone calls. After those efforts failed, Chu extracted more than $6m (£4.8m) from the company.
The indictment claims that Chu received two payments totalling $6.25m, which he used in part to buy a multimillion-dollar property in Beverly Hills, California. Tricolor later filed for chapter 7 bankruptcy in September, owing over $900m to its largest lenders.
