Federal prosecutors have charged top executives at the subprime auto lender Tricolor with conspiring to defraud lenders and investors of the now-bankrupt company.
Tricolor, which went out of business in September, specialized in offering loans and selling used cars to buyers without Social Security numbers or credit histories, often undocumented immigrants. The federal indictment claims that Tricolor founder and CEO Daniel Chu oversaw a scheme to defraud lenders to the tune of billions of dollars.
“Fraud became an integral component of Tricolor’s business strategy,” said Jay Clayton, US attorney for the Southern District of New York. “The resulting billion-dollar collapse harmed banks, investors, employees and customers.”
The indictment, unsealed Wednesday in Manhattan, said that at Chu’s direction, “multiple Tricolor executives repeatedly defrauded lenders” with schemes including “double-pledging collateral,” or pledging the same assets to multiple lenders at the same time.
The other major defendant in the case is Tricolor’s COO, David Goodgame. Two other former executives, Jerome Kollar and Ameryn Seibold, pled guilty and are cooperating with the investigation.
As Tricolor approached its collapse in August, and after Chu observed that the company was “basically history,” the indictment claims he directed Kollar to pay him $6.25 million in bonuses. He allegedly used some of this money to purchase a multimillion-dollar property in Beverly Hills, California.
Three weeks later, Tricolor placed more than 1,000 employees on unpaid leaves of absence and a month later the company filed for bankruptcy, according to the indictment.
Since then, several large banks that loaned to Tricolor have warned their own investors they were likely victims of fraud.
JPMorgan Chase, the nation’s largest bank, said it would take a $170 million hit from its dealings with Tricolor. JPMorgan CEO Jamie Dimon later said of the losses connected to Tricolor and other commercial lenders: “there clearly was, in my opinion, fraud involved in a bunch of these things.”
“I probably shouldn’t say this, but when you see one cockroach, there are probably more,” he added.
Another lender, Fifth Third Bank, said in a September filing that it had been working with law enforcement to investigate apparent fraud in its dealings with a commercial lender, taking a $200 million loss on those loans. A spokesperson for Fifth Third later confirmed to CNN that Tricolor was the commercial borrower.
A court-appointed trustee in Tricolor’s bankruptcy case told the court in October that there been a “pervasive fraud” of “extraordinary proportion,” according to a report by Bloomberg.
