NEW YORK — Federal prosecutors on Wednesday accused the founder of Tricolor Holdings of orchestrating a years-long scheme to defraud the subprime auto lender’s biggest banks and investors out of nearly $1 billion, announcing arrests of two former top executives and guilty pleas by two others, the Associated Press reported.
Daniel Chu, Tricolor’s founder and chief executive, was charged in an indictment unsealed in Manhattan federal court with directing executives since 2018 to mislead lenders through fabricated data and false statements. Chu, 62, of Miami, was arrested in Florida. A defense attorney for Chu did not immediately respond to a request for comment. Former chief operating officer David Goodgame, 49, of Waxahachie, Texas, was arrested in Texas; it was not immediately clear who would represent him at his initial court appearance, AP said.
U.S. Attorney Jay Clayton said Chu repeatedly lied to banks and credit providers, turning fraud “into an integral component of Tricolor’s business strategy.” Clayton said the company’s collapse also harmed borrowers who relied on lenders serving people with damaged credit histories.
‘“Of course, if you have something like this happen, if you have fraud in that area, it becomes harder for those people to get auto loans,” he said.
According to prosecutors, the alleged fraud came to light in late August when lenders questioned Tricolor’s collateral. The indictment says Chu and other executives initially tried to cover up the problems by blaming administrative errors. After those efforts failed, Chu withdrew more than $6 million from the company, including funds used toward the August purchase of a multimillion-dollar Beverly Hills property, AP reported.
Tricolor filed for Chapter 7 bankruptcy on Sept. 10, owing more than $900 million to its largest lenders, prosecutors said. JPMorgan Chase, the nation’s largest bank, took a $170-million charge in the third quarter tied to its exposure to Tricolor, with Chief Executive Jamie Dimon calling the loss “not our finest moment.”
Chu faces a mandatory minimum sentence of 10 years and could receive up to life in prison if convicted of running a continuing financial crimes enterprise, along with conspiracy, bank fraud and wire fraud charges. Goodgame is charged with conspiracy, bank fraud and wire fraud, AP said.
Authorities also said Tricolor’s former chief financial officer and a former finance executive pleaded guilty Tuesday in Manhattan federal court and are cooperating with the investigation.