The business plan was supposed to be simple: Tricolor made car loans, then pledged those loans as collateral to banks and investors to fund more lending. Instead, federal authorities say, the fast-growing North Texas subprime auto lender repeatedly pledged the same delinquent loans, disguising them as current to raise money on collateral that wasn’t what lenders had been promised.
By the time the scheme began to crack in August 2025, according to a federal indictment, Tricolor Holdings had pledged about $2.2 billion in collateral while holding only about $1.4 billion in actual assets backing those pledges, an $800 million gap that prosecutors attribute to fraudulent reporting and double-pledged loans.
Now the Securities and Exchange Commission has added a civil fraud case to the criminal investigation and Chapter 7 liquidation. In a lawsuit filed last month, the SEC accused former CEO Daniel Chu and other former executives of misleading investors, underwriters and lenders about the health of loans used as collateral, including by double-pledging loans. The agency alleges Tricolor raised more than $1.9 billion through asset-backed securities offerings while lying about the company’s actual financial well-being.
The allegations mark the latest chapter in the downfall of Tricolor, which served largely Hispanic car buyers with limited credit histories before its 2025 bankruptcy exposed alleged misconduct that drew federal criminal charges.
As financing unraveled for Tricolor, its founder, Chu, directed the company to pay his $15 million bonus in full, even though he acknowledged that Tricolor was “definitely insolvent,” according to a federal indictment in the Southern District of New York.
Prosecutors alleged that Chu received the final $6.25 million in two payments in August 2025. Within a week, he used some of the funds to buy a multimillion-dollar property in Beverly Hills, California.
Less than three weeks after the bonus payments, Tricolor placed more than 1,000 employees on unpaid leave, shuttered more than 60 locations and filed for bankruptcy, leaving banks and investors with hundreds of millions of dollars in losses.
By December, federal prosecutors in Manhattan accused Chu, who has pleaded not guilty, and three other former Tricolor executives of defrauding the used-car dealer’s banks and investors, alleging that they sustained the business through “systemic fraud” until its collapse.
The company’s own accounting revealed the scale of the alleged deception.
Tricolor had propped up its borrowing with roughly $800 million in bogus collateral. Its funding gap was even larger. Bankruptcy records show it owed its largest lenders more than $900 million.
Three major banks — Fifth Third Bancorp, JPMorgan Chase and Barclays — reported combined charges of about $495 million related to Tricolor. Fifth Third Bancorp reported $178 million, JPMorgan $170 million, and Barclays $147 million. Those charges could be reduced by future recoveries.
‘Tough, uphill battle’
Chu’s criminal trial has been scheduled for Jan. 25, 2027, in federal court in Manhattan. He has been charged with bank fraud, wire fraud, securities fraud, conspiracy and operating a continuing financial crimes enterprise. That last charge carries a mandatory minimum of 10 years and a maximum of life in prison.
“It may be why the defense team feels they need to push through to trial,” said Andrew Wirmani, a partner at Dallas-based Reese Marketos and a former federal prosecutor for 10 years. “There just may not be any deal on the table that is palatable for them.”
Chu, 63, has challenged the prosecution’s allegations in pretrial motions, including disputing the government’s characterization of his direction of the alleged enterprise and his knowledge of the fraud.
His attorney, Matthew L. Schwartz of Boies Schiller Flexner, has disputed the allegations. “We look forward to a full and fair hearing in the courtroom,” Schwartz said, according to Reuters.
Chu will face a difficult legal battle, according to several former federal enforcement attorneys.
“It is a tough, uphill battle,” said Wirmani. “You have the CEO and three top executives under you saying this happened, and all presumably pointing the finger at the CEO and saying he was involved, too. I think that will make it a really tough case to defend.”
The other three executives have pleaded guilty to fraud and conspiracy charges and agreed to cooperate with prosecutors, potentially by testifying against Chu. They include former chief operating officer David Goodgame, former chief financial officer Jerome Kollar and senior director of finance Ameryn Seibold.
“I knew that Tricolor was deceiving and defrauding the banks,” Goodgame told U.S. District Judge P. Kevin Castel during his plea.
The original indictment against Chu was filed Dec. 15, 2025, and unsealed two days later.
“Fraud became an integral component of Tricolor’s business strategy,” U.S. Attorney Jay Clayton said when the charges were announced. “The resulting billion-dollar collapse harmed banks, investors, employees and customers.”
Wirmani said recorded conversations between Chu and other executives strengthen the prosecution’s case, calling such evidence the “gold standard.”
“If you have him live on the recording and you have the person that was in the conversation and can interpret it and present it to the jury, if that’s what they have here, that’s a tough sell for the defense.”
Lack of collateral
Founded in Dallas in 2007, Tricolor served as a subprime lender and used-car retailer, focused primarily on Hispanic customers with limited or no credit history. By 2025, it had become the third-largest used-car retailer in Texas and California, according to the indictment.
Federal prosecutors in the Southern District of New York in Manhattan accused the four executives of defrauding banks through schemes that included “double-pledging” auto-loan collateral and disguising “near worthless” delinquent loans as sound collateral to meet lenders’ requirements before the company collapsed.
Those arrangements came with restrictions. Loans more than 60 days overdue generally could not serve as collateral, and some lenders excluded loans more than 30 days past due. Lenders typically advanced only a percentage of an eligible loan’s outstanding balance.
According to prosecutors, Tricolor executives systematically evaded those limits.
The 20-page indictment described a business increasingly reliant on falsified loan records, fabricated customer payments and misleading reports to banks.
“These four executives allegedly conspired to defraud lenders based on bogus collateral,” said FBI Assistant Director in Charge Christopher G. Raia in the Justice Department’s announcement of the indictments. “The defendants’ alleged manipulation not only ripped off multiple banks but also violated the integrity of our credit markets.”
The alleged misconduct began around 2018, when an alleged cash shortage prompted Chu to direct then-CFO Kollar to pledge delinquent loans to a bank. Some were so far behind that Tricolor had already written them off as losses, the indictment claims.
To make those loans appear to be performing, Chu allegedly instructed Kollar to create a fictitious portfolio company in Tricolor’s internal management system, transfer the loans into it and have employees enter fake payments.
Chu also served on the board of the bank that held that collateral. The indictment identified the institution only as “Lender-1.”
Another alleged scheme kept vehicles listed as inventory collateral after they had been sold. Tricolor then pledged the resulting customer loans to other lenders, obtaining financing against both the sold vehicles and the payments owed on them.
Executives also allegedly altered spreadsheets to make overdue loans appear current or recent enough to qualify for financing, according to the indictment.
For example, Kollar and Seibold would “manually change the data fields in borrowing base reports” by “editing loans more than 60 days past due to appear current or paid within the past 60 days,” the indictment said.
In an attempt to obtain additional cash, Tricolor also allegedly pledged loans already secured by other borrowing. Due to the growing risk and scope of the fraud, the indictment said, the executives “fabricated and falsified backup records when audits of the borrowing bases were conducted, including loan payment ledgers and system records indicating to which lender a loan had been pledged.”
Regulators cited internal communications indicating that Tricolor’s liquidity problems from 2022 to 2025 were further compounded by rising interest rates and used-car costs, as well as an increase in auto subprime loan delinquencies.
Even as Tricolor’s finances deteriorated, prosecutors alleged that Chu continued to receive substantial compensation. Between August 2023 and August 2025, Tricolor deposited more than $19.3 million in net salary and bonus payments into his bank accounts.
Chu’s bonus and Beverly Hills purchase present another challenge for the defense, Wirmani said. Prosecutors alleged Chu insisted on collecting the remainder of his $15 million bonus weeks before Tricolor filed for bankruptcy, then used some of the money to buy a multimillion-dollar property.
Wirmani also called Chu’s spending “tone deaf,” complicating defense lawyers’ efforts to humanize their client.
“It’s something prosecutors like and defense lawyers hate,” Wirmani said. “That is definitely not a fact I would want in my case.”
SEC joins the fray
In a parallel civil complaint last month, the SEC accused Chu, Kollar and Seibold of deceiving investors about Tricolor’s finances and the loans backing its securities.
The SEC alleged that Tricolor assured investors that the loans were free of other liens, even though they had already been pledged — or would soon be pledged — to other lenders and securities firms. Executives also allegedly created fictitious loans, disguised delinquent loans as current and manipulated financial results.
“We allege that these defendants defrauded investors based on bogus collateral and violated the integrity of our private credit markets,” SEC Enforcement Director David Woodcock, previously a partner at Gibson Dunn in its Dallas and Washington, D.C., offices, said in announcing the complaint.
The SEC’s 39-page complaint, also filed in federal court in Manhattan, detailed years of internal communications that regulators said showed executives knew the company’s financial reports and collateral representations were false.
“As alleged, the defendants in this case participated in a years-long fraudulent scheme that deceived the lenders of Tricolor,” said Patricia Tarasca, special agent in charge for Federal Deposit Insurance Corporation’s Office of Inspector General.
In July 2022, for example, the SEC alleges that Chu asked Kollar whether delinquency data for loans more than 60 days past due could be manipulated. Kollar responded that he and Seibold could “work magic” by altering the data to make delinquent loans appear current. By November, four months later, Kollar allegedly told Chu that manipulating delinquency data had generated an additional $1.3 million in funding.
The SEC also alleges that Chu and Kollar manipulated quarterly financial results by deferring inventory losses and altering fair-value models to meet lending requirements and “artificially enhance the appearance of Tricolor’s financial performance.”
The complaint describes about $100 million in bad-debt adjustments during a 2022 audit tied to fictitious collateral. According to the complaint, those manipulated adjustments were carried forward into later financial statements and provided to potential investors and lenders.
On March 1, 2023, to improve liquidity, Seibold told Goodgame that he had double pledged by taking accounts from one lending facility and pledging them to another to obtain cash. According to the complaint, Goodgame jokingly responded with a crying emoji.
In September 2023, Seibold allegedly wrote that Tricolor badly needed another securitization because nearly all its warehouse credit facilities had “capped out,” reaching their limits. The SEC alleges that Tricolor nevertheless continued to portray itself to potential investors as having strong access to capital.
The alleged manipulation continued into 2025.
In one of the SEC’s most striking double-pledge allegations, Kollar instructed an employee on June 17, 2025, to include the same 3,225 auto loans as collateral in two separate Tricolor securitizations — one issued in 2022 and another in June 2025.
According to the complaint, an unidentified financial institution analyzed Tricolor’s books and uncovered about $365.5 million in loans that had been double pledged to Tricolor securitizations, including about $49 million associated with the company’s most recent 2025 offering.
The SEC said scrutiny intensified after lenders discovered that the loans were reported as current even though their principal balances had not declined for months. According to the complaint, one analyst identified $63 million in loans that had received no payments for 180 days but were still listed as current.
Regulators alleged that Chu and other executives discussed the discrepancies and ways to “claim that a system error caused the data anomalies,” according to the SEC complaint. Chu “asked for help finding an explanation — other than the truth — that they could give to the lenders that would be believed.”
‘That would be bad’
By August 2025, however, a lender had noticed an unexplained discrepancy in the company’s reports: Loans supposedly receiving regular payments showed no corresponding decline in principal balances.
The mounting questions prompted a series of calls among Chu, Goodgame, Kollar and another executive. According to the indictment, various participants secretly recorded the calls.
During an Aug. 17 call, Chu “proposed various lies the conspirators could tell to resolve the audit and explain the manipulated data.” He proposed explaining the discrepancies with a fictitious “Trump administration deferment” policy, though no such policy existed at Tricolor, the indictment said.
Chu also warned that direct access to the company’s internal records “would not match the manipulated records and false excuses Tricolor provided to lenders and auditors,” according to the indictment.
“Where we would have an issue is if they sent an auditor and said, pull this up on your screen, right, that would be a problem,” Chu said, according to the criminal indictment.
“Yes. That would be bad,” Kollar responded.
The next day, Chu described a lender’s discovery of $63 million in loans that had been delinquent for 180 days but were still reported as current. Prosecutors alleged that Chu then demanded to know why Seibold hadn’t also reduced the reported balances to make the supposed payments appear credible.
Chu complained, saying, “He did not understand how Seibold could ‘be doing this and not thinking that the balance has to reduce,’” the indictment said. Chu went on to call it one of “the stupidest” things he had ever heard.
Seibold told Chu that he had been reporting thousands of charged-off loans and could not remove them all without triggering millions of dollars in repayment obligations.
“I can’t reduce by a full 8,000 (charged-off loans) without having us have millions of dollars in debts that we need to pay down … I’m doing what I thought was what we needed,” Seibold said, according to the indictment.
On an Aug. 19 call, the indictment states that Chu turned to full denial and tried to disavow any irregularities. He recounted telling a lender that anyone deliberately committing fraud would not have left the balances unchanged. “[L]ook, if we were trying to commit fraud, we wouldn’t be so stupid as to keep the same balance on there. … Nobody would be that stupid.”
The SEC complaint said that on an Aug. 19 call, Chu “began feigning ignorance of the double pledging, the inclusion of dead loans and other ineligible collateral in the warehouses and securitizations, and of other data tape manipulations.”
By Aug. 21, Kollar had completed an audit that revealed the scope of the fraud, according to the indictment. According to his analysis, Kollar found that “Tricolor had pledged approximately $2.2 billion of collateral to lenders and investors, but Tricolor had only approximately $1.4 billion of real collateral,” the criminal indictment said.
By Aug. 27, the SEC alleged that Chu again portrayed himself to another lender as shocked by the manipulation and blamed Kollar for altering borrowing-base reports to address cash-flow shortfalls.
Three days later, Chu and other executives discussed whether they could pressure lenders into a favorable settlement by accusing the banks of ignoring warning signs, according to the criminal indictment.
Chu invoked Enron, the Houston energy company that collapsed amid an accounting scandal, and proposed using artificial intelligence to identify language Goodgame could use in discussions with a lender, according to the indictment.
By then, one major lending facility had been terminated, the indictment said.
On Sept. 6, 2025, Tricolor placed more than 1,000 employees on unpaid leave. Four days later, Tricolor filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Northern District of Texas.
Eighteen affiliated companies entered bankruptcy, and their cases were jointly administered under Tricolor Holdings’ case.
The liquidation has continued under Chapter 7 trustee Anne Elizabeth Burns.
The SEC said the review of Tricolor’s collateral has continued and that the full extent of investor losses has yet to be determined.
The SEC is seeking injunctions, repayment of allegedly ill-gotten gains with interest, and civil penalties against all three defendants. It also seeks to bar Chu and Kollar from serving as officers or directors of publicly reporting companies.
Woodcock has publicly said that the agency plans to be more selective and expedite its investigations.
The SEC had 871 departures over the past few years, according to the GAO, with hundreds accepting paid early resignation offers amid efforts by President Donald Trump and Elon Musk to cut government spending. In all, there was about an 18 percent attrition rate in the enforcement division. The agency’s $2.1 billion budget has remained about the same, with more than 4,000 employees.
Rebecca Fike, a Dallas partner with Reed Smith who served 10 years in the SEC’s Division of Enforcement, said she was not surprised it took several years to unravel the fraud and charge the Tricolor executives.
“Tricolor wasn’t a public company,” Fike said. “So, that does make it harder.”
Public companies must report their financials and audits. “For a private company, it takes longer to investigate and unravel,” Fike said, “especially given that the SEC was going through a lot of changes and a lot of staff turnover.”
Fike said investigating such financial crimes depends on how many people were involved and how high up they were in the company.
“It takes a few years and maybe a third party to start asking questions,” Fike said. “You need to get all the info you need to review it and see if it is true. It takes a long time to build a fraud story.”
“Complex federal investigations just take a long time,” Wirmani added. “I don’t think two to three years of investigation is surprising by any means.”
Wirmani said a financial-crimes case is not a single event, such as a bank robbery or kidnapping.
“It is a culmination of decisions that all have to be unraveled, requiring a sophisticated financial investigation to unravel it.”
Tricolor’s Financial Fallout
Tricolor was founded by Daniel Chu in Dallas in 2007. The company served as a subprime lender and used-car retailer, focused primarily on Hispanic customers with limited or no credit history. By 2025, it had become the third-largest used-car retailer in Texas and California, according to the indictment. It operated about 65 retail centers across Texas, California, Nevada, Arizona, New Mexico and Illinois, as well as a shared services center in Guadalajara, Mexico. Here are some key numbers:
1,500: At its peak, Tricolor employed more than 1,500 people. It generated about $1 billion in annual revenue in both 2023 and 2024.
26,688: In its Chapter 7 liquidation filing on Sept. 10, 2025, the company listed 26,688 creditors, most of them vendors.
60,000: When Tricolor declared bankruptcy, the company had more than 60,000 outstanding car loans.
$900 million: The total owed to the largest lenders, including $495 million to the three largest lenders: Fifth Third Bancorp, JPMorgan Chase and Barclays.
$2.2 billion: The company had pledged about $2.2 billion in collateral but held only about $1.4 billion in actual assets backing those pledges. Prosecutors allege the $800 million gap to fraudulent reporting and repeated use of the same collateral.