Former Tricolor CEO Daniel Chu ‘largely responsible’ for Tricolor fraud, trustee says

The Chapter 7 bankruptcy trustee for Tricolor Holdings is preparing to sue former CEO and founder Daniel Chu, alleging that he was largely responsible for a wide‑ranging fraud that led to the company’s collapse.

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What the trustee is alleging

Court filings by the trustee say Tricolor engaged in “pervasive” or “systemic” fraud, including falsifying loan data and misrepresenting collateral backing its financings and securitizations. The trustee’s position is that Chu, as founder and longtime CEO, orchestrated or oversaw this misconduct and therefore bears primary responsibility for the losses to creditors and investors.​

Nature of the alleged fraud

Investigations and bankruptcy disclosures indicate Tricolor allegedly pledged the same auto loans as collateral to multiple banks (“double‑pledging”) and, in many cases, used duplicate or even fabricated vehicle identification numbers for cars that did not exist. Banks later identified large discrepancies between Tricolor’s audited financial statements and underlying loan data, suggesting years of misreported or falsified information.​

Investigations and legal exposure

Federal prosecutors and regulators, including the US Department of Justice and the Securities and Exchange Commission, are investigating Tricolor and Chu over potential fraud relating to its loan portfolios and securitizations. At the same time, multiple lenders such as JPMorgan, Fifth Third, and others have disclosed hundreds of millions of dollars in expected losses tied to Tricolor’s collapse.​

Insurance and defense fight

A key dispute highlighted in the article is Chu’s bid to use the full US$15 million in directors‑and‑officers liability insurance to fund his own legal defense. The trustee opposes this, arguing that the policy is meant to cover defense costs for all insured executives and that allowing Chu sole access would be unfair given the allegations that he was chiefly responsible for the fraudulent scheme.​

Status and what it means

Tricolor is in Chapter 7 liquidation, with tens of thousands of loans and vehicles tied up while a third‑party servicer and the trustee sort out which assets are legitimate. The trustee’s planned lawsuit against Chu, combined with ongoing criminal and regulatory probes, means his personal legal exposure is substantial, although no court has yet entered a final judgment on liability.​