Banks including JPMorgan and Jefferies Financial Group had extended hundreds of millions of dollars in credit to Tricolor
Federal prosecutors charged senior executives of bankrupt subprime auto lender Tricolor Holdings with what they called a yearslong, systematic fraud that helped trigger the company’s billion‑dollar collapse and rattled confidence in parts of the banking sector earlier this year.
Tricolor, which sold used cars to borrowers with limited or poor credit in the United States South and Southwest, told the court it had more than $1 billion in assets when it filed for Chapter 7 bankruptcy in Texas in September, owing over $900 million to its largest lenders.
Banks including JPMorgan, Jefferies Financial Group and several regionals had extended hundreds of millions of dollars in credit to Tricolor and related borrowers by the time the company failed, fueling concern that stresses in private credit and leveraged lending could spread.
In an indictment unsealed in Manhattan, prosecutors alleged that from at least 2018 through September 2025, founder and CEO Daniel Chu and former chief operating officer David Goodgame ran fraudulent schemes that helped Tricolor secure billions of dollars from lenders and investors by overstating the value of its loan collateral.
The company allegedly pledged the same auto loans to several lenders at once and manipulated its data so that delinquent or written‑off loans looked as if they still qualified for financing.
“Fraud became an integral component of Tricolor’s business strategy. The resulting billion‑dollar collapse harmed banks, investors, employees and customers,” Manhattan US attorney Jay Clayton said in a statement.
Former Tricolor executives Jerome Kollar and Ameryn Seibold pleaded guilty to fraud charges and are cooperating with the government.
Prosecutors said the full extent of the alleged scheme came to light in late August, when lenders questioned Tricolor’s collateral. Chu and other executives first tried to hide the problem, blaming it on an administrative error, but when that failed, Chu withdrew more than $6 million from the company.
High‑profile figures have previously warned about growing stress in the US financial system after the failure of Tricolor and auto‑parts firm First Brands.
JPMorgan CEO Jamie Dimon, a closely watched voice on markets, said that there could be other “cockroaches” in the lending space.
Bank of England governor Andrew Bailey also said that he saw troubling echoes of the 2007–08 global financial crisis, particularly in how some lenders were now structuring debt.
Jefferies and some regional banks briefly tumbled in mid‑October as investors feared more bad loans were coming. Zions Bancorporation fell more than 13% and Western Alliance more than 10% in a single day, and a regional banking ETF slid more than 6%.
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