In a dramatic turn of events, the founder of Tricolor Holdings, a subprime auto lender headquartered in Irving, Texas, has been arrested and charged with orchestrating a nearly $1 billion fraud against its largest lenders.
Arrests of Key Executives
Daniel Chu, the company’s founder and chief executive, was apprehended in Florida. He is 62 years old and resides in Miami. David Goodgame, the former chief operating officer, was arrested in Texas; he is 49 years old and lives in Waxahachie. Authorities have not yet confirmed who will represent Goodgame at his initial court appearance.
The Fraud Scheme
An indictment unsealed in Manhattan federal court alleges that since 2018 Chu directed multiple executives to defraud investors and lending institutions. The schemes involved fabricating data and making false statements, according to the indictment. In late August, when lenders confronted the company about its collateral, Chu and other executives initially tried to conceal the issues, claiming they were due to an administrative error. After those efforts failed, Chu extracted more than $6 million from Tricolor, some of which was used to purchase a multimillion-dollar property in Beverly Hills, California.
On September 10, Tricolor filed for Chapter 7 bankruptcy after it became clear the company owed over $900 million to its largest lenders.
Legal Consequences
Chu faces a mandatory minimum sentence of ten years in prison and a maximum of life behind bars if convicted of running a continuing financial crimes enterprise. He also faces charges of conspiracy, bank fraud, and wire fraud. Goodgame is charged with conspiracy, bank fraud, and wire fraud.
In addition, a former chief financial officer and a former finance executive at Tricolor pleaded guilty to charges on Tuesday in Manhattan and are cooperating with the government.
Impact on Customers
U.S. Attorney Jay Clayton told a news conference that Chu repeatedly lied to banks and other credit providers, turning fraud “into an integral component of Tricolor’s business strategy.” He added that the company’s collapse dealt a blow to car-buying customers who relied on a lending business catering 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.
The fraud and subsequent bankruptcy have left many consumers without access to financing options that were previously available through Tricolor.
Key Takeaways
- Daniel Chu, founder and CEO, arrested in Florida; David Goodgame, former COO, arrested in Texas.
- The company defrauded lenders of nearly $1 billion, filing for Chapter 7 bankruptcy on September 10.
- Chu faces up to life in prison; Goodgame faces similar charges; former CFO and finance executive cooperating.
The case underscores the risks associated with subprime auto lending and highlights the importance of regulatory oversight to protect consumers with limited credit options.
Closing
The arrests and guilty pleas mark a significant moment for the subprime auto lending industry. As authorities continue to investigate the full extent of the fraud, the repercussions for customers and lenders alike will likely unfold over the coming months. The case serves as a cautionary tale about the potential consequences of prioritizing profit over ethical business practices.
