Top executives at a bankrupt subprime auto lender charged with running a fraud scheme. Here’s how prosecutors say they misled banks to earn billions

Federal prosecutors say the scheme began around 2018 and continued until Tricolor filed for bankruptcy in September 2025. An indictment in Manhattan charged founder and CEO Daniel Chu and chief operating officer David Goodgame with orchestrating what prosecutors called a years long, “systematic fraud.”

“Fraud became an integral component of Tricolor’s business strategy,” U.S. Attorney Jay Clayton said. “The resulting billion-dollar collapse harmed banks, investors, employees and customers. It also undermines confidence in our financial system.”

Rapid growth fueled by distorted loan data

The government says Tricolor executives repeatedly misrepresented the quality and value of the company’s auto loans, which were used as collateral to secure funding. One tactic allegedly involved “double-pledging” the same loans to multiple lenders at the same time, effectively using identical collateral to back different borrowing arrangements.

Prosecutors also allege that loan data was manipulated so that delinquent or charged-off loans appeared eligible for financing. By making risky loans look healthier than they were, Tricolor was able to convince banks and investors that its loan portfolio was stronger and more diversified than reality.

Those misrepresentations, prosecutors say, allowed Tricolor to obtain billions of dollars from lenders and investors. At the time of its bankruptcy filing, the company claimed it had more than $1 billion in assets.

The fallout didn’t stop with Tricolor. Banks including JPMorgan and Jefferies Financial Group had extended hundreds of millions of dollars in financing to Tricolor and to auto parts maker First Brands, which failed in the same month. The twin bankruptcies rattled Wall Street and briefly sent shares of several regional banks sharply lower amid fears that other risky loans might be lurking on balance sheets.

Why subprime auto lending is vulnerable to abuse

Subprime auto lending provides vehicle financing to borrowers with low credit scores (typically 580 to 619) or limited credit histories. These loans carry higher interest rates and fees than prime loans to offset perceived lending risk.

Such loans play a significant role in the U.S. credit system. For borrowers with low credit scores or thin credit histories, these loans can be one of the few ways to buy a car (2), often a necessity for commuting to work or caring for family.

But the same features that make subprime lending accessible also make it risky. Interest rates are higher, loan terms can be complex and defaults are more common. Lenders often bundle loans together and sell them to banks or investors, who rely heavily on data provided by the originating company to assess risk.

That reliance creates vulnerabilities. If loan data is poorly monitored or intentionally manipulated, problems can snowball quickly. Aggressive growth incentives can encourage companies to prioritize loan volume over quality, while weak oversight allows bad practices to persist.

Subprime auto lending has faced rising default rates in recent years, as higher interest rates and inflation squeeze lower-income borrowers, according to data from the Federal Reserve Bank of New York (3). While most lenders aren’t accused of fraud, the sector’s structure makes it particularly sensitive to lax controls and aggressive assumptions.

In Tricolor’s case, prosecutors argue those vulnerabilities were exploited on a massive scale. By masking delinquent loans and double-pledging collateral, executives allegedly shifted risk onto banks and investors who believed they were funding far safer assets.