$1 billion fraud revealed with guilty pleas from subprime auto lender Tricolor
The founder of Tricolor Holdings led other top executives of the subprime auto lender on a seven-year campaign to defraud its largest lenders out of nearly $1 billion, authorities said Wednesday, as they announced two arrests and guilty pleas by two former executives.
Daniel Chu, the company’s founder and chief executive, was charged in an indictment unsealed in Manhattan federal court with directing multiple executives since 2018 to defraud investors and lending institutions. The fraudulent schemes included fabricating data and making false statements, according to the indictment.
A defense lawyer for Chu did not immediately return a message seeking comment.
Chu, 62, of Miami, was arrested in Florida, while David Goodgame, 49, of Waxahachie, Texas, the company’s former chief operating officer, was arrested in Texas. It was not immediately clear who will represent Goodgame at an initial court appearance.
U.S. Attorney Jay Clayton told a news conference that Chu repeatedly lied to banks and other credit providers as he turned fraud “into an integral component of Tricolor’s business strategy.”
He said the collapse of the company dealt a blow to car-buying customers who needed the services of a lending business that catered to people with troubled 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,” Clayton said.
According to the indictment, the scope of the fraud was revealed in late August when lenders confronted Chu and other executives about Tricolor’s collateral.
Chu and others accused of carrying out the fraud initially tried to conceal it, saying the collateral issues were due to an administrative error, the indictment said. After those efforts failed, Chu extracted over $6 million from the company, spending some of it on the August purchase of a multimillion dollar property in Beverly Hills, California, the indictment said.
On Sept. 10, Tricolor filed for Chapter 7 bankruptcy because it owed over $900 million to the company’s largest lenders, the indictment said.
Chu could face a mandatory minimum sentence of 10 years in prison and a maximum of life behind bars if he is convicted on the top charge of running a continuing financial crimes enterprise. Other charges include conspiracy, bank fraud and wire fraud. Goodgame was charged with conspiracy, bank fraud and wire fraud.
Authorities also announced that a former chief financial officer and a former finance executive at Tricolor had pleaded guilty to charges on Tuesday in Manhattan and were cooperating with the government.
This story was originally featured on Fortune.com