Fraud charges follow subprime auto lender Tricolor Holdings collapse

(NEW YORK) -- Federal prosecutors in New York unsealed criminal charges Wednesday in connection with the collapse of subprime auto lender and used car retailer Tricolor Holdings, which went bankrupt earlier this year.

Founder and CEO Daniel Chu, COO Daniel Goodgame, and former Tricolor executives Jerome Kollar and Ameryn Seibold, were charged with conspiracy, bank fraud and running a continuing financial crimes enterprise, according to the indictment from the U.S. Attorney's Office for the Southern District of New York.

Kollar and Seibold have pleaded guilty to fraud and are cooperating with the government, according to prosecutors.

"CEO Daniel Chu was the leader of an elaborate scheme to defraud creditors of Tricolor,” U.S. Attorney Jay Clayton said in a statement announcing the indictment. “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."

"The resulting billion-dollar collapse harmed banks, investors, employees and customers," Clayton said.

Tricolor Holdings is a provider of subprime auto loans. The company also operates a chain of used car dealerships across the Southwest. It specializes in loans to low-credit and no-credit buyers, often issuing them without a credit check, the indictment said.

The defendants “engaged in a series of frauds directed at each of Tricolor’s lenders,” the indictment said. They allegedly double-pledged the same collateral to multiple lenders, allowing Tricolor to borrow against the same assets, at the same time, repeatedly, according to the indictment, and also “manipulated loan date to make ineligible, delinquent loans appear current and compliant with lender requirements.”

To cover their tracks, the defendants simply fabricated records, including fake customer payments, according to the indictment. Federal prosecutors said this fraudulent activity became Tricolor’s “routine manner of business.”

When Tricolor filed for Chapter 7 bankruptcy in September, its lenders – which included JPMorgan Chase, Fifth Third Bancorp and Barclays – sustained multi-million-dollar losses, prosecutors said.

Chu, 62, faces a maximum sentence of life in prison if convicted of the first count of the four with which he's charged, Continuing Financial Crimes Enterprise. The remaining defendants face sentences of between five and 30 years in prison.

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