Bankrupt Tricolor Executives Accused of Fraud

It was a bankruptcy that sent shock waves through the subprime industry, and now prosecutors are indicting top executives with Tricolor Holdings with fraud.

This fraud scheme went on for years and was systemic in nature, CNBC reports. 

According to the indictment, from 2018 through September 2025 Tricolor Founder and Chief Executive Officer Daniel Chu and Chief Operating Officer David Goodgame perpetrated schemes that allowed Tricolor to trick billions of dollars from lenders. They did this by misrepresenting the value of Tricolor’s loan collateral.

Tricolor was in the used car business and sold cars to customers with poor or limited credit. They also served customers without Social Security numbers, often undocumented immigrants. The company declared bankruptcy in September.

The Case Against Tricolor

“As alleged in the indictment, CEO Daniel Chu was the leader of an elaborate scheme to defraud creditors of Tricolor,” said U.S. Attorney Jay Clayton in a press release  “At his direction, Tricolor repeatedly lied to banks and other credit providers, including by falsifying auto-loan data and ‘double pledging’ collateral.”

Clayon added, “Fraud became an integral component of Tricolor’s business strategy. The resulting billion-dollar collapse harmed banks, investors, employees, and customers. It also undermines confidence in our financial system.”

How Tricolor’s Fraud Scheme Worked

Tricolor executives would pledge the same auto loans to multiple lenders. They also manipulated delinquent or charged-off auto loans so the loans would appear eligible for financing, according to CNBC.

Uncovering the Fraud

The fraud was uncovered in late August when lenders confronted Chu and others about the company’s collateral, ABC News reports. 

They tried to hide the fraud saying it was due to an administrative error. Those efforts were unsuccessful and Chu then took more than $6 million from Tricolor.

Tricolor filed for Chapter 7 bankruptcy on Sept. 10 owing more than $900 million to Tricolor’s biggest lenders. 

The Risk of Other Failing Businesses

First Brands, an auto parts maker, filed bankruptcy in September 2025 as well and there was concern that more businesses would fail across the industry.

Banks lending hundreds of millions of dollars to Tricolor and First Brands include JPMorgan and Jefferies Financial Group, according to CNBC.

Other banks impacted by the fraud scheme at Tricolor are Barclays and Fifth Third. At Fifth Third, the bank lost a potential $200 million on an asset-backed loan to Tricolor. Barclays had warehouse lines and securitization agreements with Tricolor.

How to Stop Greater Collapses in the Subprime Market 

To prevent further collapse in the subprime market, lenders that serve customers with little or no credit should re-assess and tighten their lending standards. Rating agencies and regulators need to pay greater attention to this market as well.

Higher standards will help to ensure customers can manage the auto loans and credit lines that they’ve been granted and lenders will have fewer losses.

The Bottom Line

The latest twist in the bankruptcy of Tricolor is top executive officers being indicted for a fraud scheme that went on for years. They fooled lenders by pledging the same auto loans to multiple lenders. They also manipulated charged-off or delinquent loans so they would look legitimate for financing. 

Shocking fraud news aside, those in the subprime business should protect their bottom lines by tightening lending standards. Doing so will lead to a more profitable future.