Federal prosecutors announced the indictments Wednesday of four former executives at bankrupt subprime auto dealer Tricolor, alleging they engaged in a multiyear "systemic fraud" scheme.
Tricolor founder Daniel Chu, former chief operating officer David Goodgame and former executives Jerome Kollar and Ameryn Seibold were charged in what the U.S. Attorney’s Office for the Southern District of New York claimed was "a series of frauds directed at each of Tricolor’s lenders."
"At Chu's direction, multiple Tricolor executives repeatedly defrauded lenders using various fraudulent schemes including 'double-pledging' collateral — pledging assets to support one loan and then pledging the same assets to another lender to support another loan," prosecutors allege in a filing.
Shortly after they announced the indictments, prosecutors revealed that two defendants, Kollar and Seibold, had already pleaded guilty and said "both are cooperating with the government."
U.S. Attorney Jay Clayton described Tricolor as a "financial crimes enterprise" at a news conference Wednesday.
"The systematic fraud alleged in this case and described in the bankruptcy court proceedings had a profound effect on many victims, including the lenders who put nearly a billion dollars at risk and suffered hundreds of millions in losses," Clayton said in New York City.
The bankruptcy of Tricolor rocked the banking and credit industries as a potential sign of overall weakness in the banking system.
Some of the largest banks in the world were hit with losses from the bankruptcy, including JPMorgan Chase, Barclays and Fifth Third.
Asked about a recent wave of bank deregulation in Washington and whether stricter bank supervision could have exposed the fraud sooner, Clayton replied, "I don't think that supervision or lack of supervision had anything to do with" the alleged crimes.
Pointing to the indictment, Clayton said it was the "kind of conduct that is designed to, I would say, evade supervision."
The supervision question came up in part because prosecutors alleged that Chu “and others discussed the possibility that they could blame the banks for ignoring red flags and use that threat as leverage to extract a favorable [bankruptcy] settlement.”
Christopher G. Raia, the assistant FBI director in charge of the New York field office, said the crimes alleged in the indictment "not only ripped off multiple banks but also violated the integrity of our credit markets."
"The FBI will never tolerate any company that makes fraud part of its business," Raia said.
Tricolor, founded in 2007, sold used cars to customers with limited or poor credit across several states.
It grew to become "the third-largest used auto retailer in Texas and California, operating approximately 65 retail centers in Texas, California, Nevada, Arizona, New Mexico, and Illinois," the Justice Department said in a filing.
Prosecutors wrote, "At its peak, Tricolor employed over 1,500 people and generated approximately $1 billion in annual revenue in both 2023 and 2024."
When the company went bankrupt, it still had "over 60,000 outstanding car loans," the government alleged. Tricolor told a court in a bankruptcy filing that it had over $1 billion in assets when it went under.
Tricolor's alleged fraud began to unravel in August, after lenders learned the company had not completed an audit that had begun in February. The Justice Department's filing says multiple lenders "expressed concerns" about the unfinished audit.
At that point, the Justice Department alleges, Chu "proposed various lies the conspirators could tell to resolve the audit."
A onetime spokesperson for the company did not reply to a request for comment, and an email to the company's address was not returned.
On Wednesday, Tricolor's website said that the company was "no longer offering financing or sales services" but that existing customers should "continue making your payments as usual."
