Authored by Rob Sabo via The Epoch Times,
The former CEO and chief operating officer of subprime auto dealer and financier Tricolor Holdings were formally charged on Dec. 16 with bank and wire fraud for their alleged roles in what officials say was a years-long scheme to defraud banks and private credit lenders of hundreds of millions of dollars.
Tricolor founder Daniel Chu and David Goodgame were indicted in federal court in Manhattan for multiple financial schemes that started in 2018 and include double-pledging collateral to multiple lenders, as well as manipulating the characteristics of delinquent loans in order to meet lender requirements, the U.S. Attorney’s Office of the Southern District of New York said in a statement.
“CEO Daniel Chu was the leader of an elaborate scheme to defraud creditors of Tricolor,” U.S. Attorney Jay Clayton said.
“At his direction, Tricolor repeatedly lied to banks and other credit providers, including by falsifying auto-loan data and ‘double pledging’ collateral. Fraud became an integral component of Tricolor’s business strategy.”
Tricolor’s former CFO, Jerome Kollar, and financial executive Ameryn Seibold pled guilty to fraud charges for their roles in the scheme and have been cooperating with the investigation of the company’s top executives, the indictment noted.
According to the indictment, Chu directed Tricolor leadership to double-pledge loan collateral to multiple banks, as well as to manipulate data on nonperforming loans in order to bundle them and obtain additional lending. The executives also allegedly made up records that included false payments on loans.
By August, Tricolor had obtained roughly $2.2 billion from lenders and investors, though it only had about $1.4 billion in actual assets.
Founded in 2007 in Irving, Texas, Tricolor on Sept. 10 filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the Northern District of Texas.
The company operated more than 60 dealerships, primarily in California and Texas, and its buy-here-pay-here financing model proved attractive to subprime borrowers.
The scheme began to implode this past summer when lender JPMorgan Chase confronted Tricolor and Chu about the $800 million discrepancy. The banker in October recorded a $170 million charge-off in the third quarter due to its exposure to Tricolor debt.
“It is not our finest moment,” JPMorgan Chase CEO Jamie Dimon said at the time.
Other lenders include Barclays PLC, Zions, and Western Alliance. Fifth Third Bancorp recorded a similar $178 million charge-off in the third quarter based on its wholesale lending to Tricolor, while Zions said it would take a $50 million write-off.
As Tricolor began to unravel—the company in September placed more than 1,000 employees on unpaid leave and shuttered operations just before it filed for bankruptcy—Chu directed his chief financial officer to pay him a bonus of $6.25 million, the indictment said.
Chu allegedly used some of the funds to pay for a multimillion-dollar property in Beverley Hills in August.
Tricolor’s turbulent financial failure mirrors that of auto parts supplier First Brands Group, which filed for Chapter 11 bankruptcy protection on Sept. 28. First Brands Group listed debts between $10 billion and $50 billion.
Its collapse has roiled credit markets, a Moody’s Investors Services report said.
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