Tricolor Auto Lawsuit: Fraud Charges, Bankruptcy, Investor Suits

The Tricolor auto lawsuit landscape now spans a federal criminal case in Manhattan against the subprime lender’s top executives, a Chapter 7 bankruptcy in the Northern District of Texas covering more than a billion dollars in liabilities, and civil suits by bondholders against the banks and trustees that financed and oversaw Tricolor’s securitizations. Prosecutors say founder and CEO Daniel Chu ran a multi-year scheme that inflated collateral by roughly $800 million; Chu and former COO David Goodgame have pleaded not guilty and are set for trial in October 2026.

What Tricolor Was and Why It Collapsed

Tricolor Holdings, LLC was an Irving, Texas-based “buy here, pay here” used-car dealer and lender that sold vehicles and financed them in-house, mostly to deep-subprime borrowers in Texas and California. At its peak the company ran more than 60 dealerships, managed about $1.3 billion in auto-loan receivables, and funded itself by packaging those loans into asset-backed bonds. JPMorgan Chase arranged more than three-quarters of roughly $2.7 billion in bond sales.¹

The unraveling began when a junior analyst at bondholder Waterfall Asset Management noticed that loans Tricolor reported as “current” showed no reduction in principal balances. Waterfall flagged JPMorgan, JPMorgan called Chu, and the company fell apart within days. Tricolor shuttered all 60 locations on September 4, 2025, put more than 1,000 employees on unpaid leave, and filed for Chapter 7 liquidation on September 10, listing more than $1 billion in both assets and liabilities and more than 25,000 creditors.²

The Alleged Fraud in Plain Terms

According to a federal indictment unsealed in Manhattan on December 17, 2025, Tricolor executives ran a fraud scheme from roughly 2018 through the 2025 collapse. The core allegation is “double-pledging”: using the same pools of auto loans as collateral for separate warehouse credit lines at different banks, so each bank believed it held exclusive rights to cash flows that had quietly been promised elsewhere.³

Prosecutors also allege executives manipulated loan data to make delinquent or charged-off loans look current, and fabricated customer payment records to keep the picture intact. By August 2025, Tricolor had pledged approximately $2.2 billion in collateral while actually holding only about $1.4 billion in real assets — an $800 million gap of what the government calls “bogus collateral.” Lenders had advanced more than $900 million on those misrepresentations.³

A 2022 audit by accounting firm Crowe had earlier raised concerns about asset valuation, inaccurate reporting, and more than $1 million in personal spending by Chu. Tricolor later brought in Grant Thornton for follow-up work in 2023 and 2024; that firm reportedly found no issues.¹

The Federal Criminal Case

Four former Tricolor executives face charges in the Southern District of New York. The lead case against Chu and Goodgame is United States v. Chu, No. 25-CR-579.

Daniel Chu, Founder and CEO

Chu faces the most serious counts: operating a continuing financial crimes enterprise, conspiracy to commit bank fraud and wire fraud, bank fraud, and wire fraud affecting a financial institution. The continuing-financial-crimes-enterprise count carries a mandatory minimum of 10 years in prison. Prosecutors also allege Chu directed the CFO to pay him a $15 million bonus while the company was already insolvent.³

David Goodgame, Former COO

Goodgame is charged with conspiracy to commit bank fraud and wire fraud, bank fraud, and wire fraud affecting a financial institution. Prosecutors allege he knowingly participated in the double-pledging and worked with Chu to conceal it, including discussing strategies to use litigation threats against banks.⁴

Jerome Kollar, Former CFO, and Ameryn Seibold, Former Finance Executive

Both pleaded guilty on December 16, 2025, one day before the indictment against Chu and Goodgame was unsealed. Each admitted to seven counts: conspiracy to commit bank fraud and wire fraud, bank fraud, wire fraud, false statements to financial institutions, conspiracy to commit securities fraud, securities fraud, and destruction of records. Both are cooperating with the government. Seibold, 31, of Princeton, Texas, was released on a $100,000 bond.⁵

Arraignment and Trial Date

Chu and Goodgame were arraigned on January 13, 2026, before U.S. District Judge P. Kevin Castel and both entered not-guilty pleas. Goodgame was released on a $500,000 personal recognizance bond co-signed by two financially responsible persons, with travel restricted to the Southern and Eastern Districts of New York and the Northern and Eastern Districts of Texas. Judge Castel set a jury trial for October 19, 2026, with a final pretrial conference on October 13. As of June 2026, prosecutors have opposed a defense request to postpone the trial.⁶⁷

Investor Civil Lawsuits

Bondholders who bought Tricolor’s asset-backed notes have opened two separate civil tracks. Industry observers have described them as first-of-their-kind litigation in the auto-loan securitization space.⁸

Suit Against JPMorgan, Barclays, and Fifth Third

In February 2026, 36 investors including funds managed by Janus Henderson, Ellington Capital Management, and One William Street Capital Management sued JPMorgan Chase, Barclays, and Fifth Third in federal court in Manhattan. They held more than $270 million in Tricolor notes, some trading below 10 cents on the dollar. The plaintiffs accused the banks of “sticking their heads in the sand” and ignoring red flags while financing and securitizing Tricolor’s loans, and of fraudulently marketing the debt despite internal audits in 2022 and 2024 that had revealed inaccurate loan reporting. The banks countered that they were victims of the same fraud and had taken major losses on their own warehouse credit lines. On June 10, 2026, U.S. District Judge Jed Rakoff dismissed the lawsuit.⁹

Suit Against Wilmington Trust and Vervent

A separate group of subordinate noteholders, also represented by Quinn Emanuel, filed suit in January 2026 against Wilmington Trust, the custodian and indenture trustee for Tricolor’s securitization trusts, and Vervent, the backup servicer. The investors alleged Wilmington Trust was “asleep at the wheel,” failing to verify the existence of original loan documents and vehicle titles from 2018 through 2025, and that both defendants breached their obligation to make post-default payments from a reserve fund. The plaintiffs also alleged Vervent collected approximately $2.5 million in impermissible transition costs. The case was originally filed in New York state court and removed to the Southern District of New York. As of mid-2026, a venue dispute remains pending and the defendants have not yet formally responded on the merits.⁸

The Chapter 7 Bankruptcy and the D&O Insurance Fight

Tricolor’s straight-to-Chapter-7 filing was unusual for a company of its size, with no attempt at reorganization. Anne Burns, a shareholder at Cavazos Hendricks Poirot PC, was appointed Chapter 7 trustee and took on control of roughly 10,000 vehicles across six states and about 100,000 outstanding auto loans. Major creditors include Barclays, JPMorgan Chase, and TBK Bank, which alone claims it is owed more than $60 million secured by company vehicles. The trustee’s interim report projects that a final report may not come until September 2030.¹⁰¹¹

A related fight played out over Tricolor’s $15 million directors-and-officers insurance policy. Chu sought access to it to fund his criminal defense; the trustee argued that draining the policy would shrink the pool available to other claimants. Bankruptcy Judge Michelle V. Larson initially declined Chu’s request in January 2026, then reversed in February and approved the release of $5 million for Chu and other covered parties, while keeping two additional policies totaling $10 million frozen for the time being.¹²

What Tricolor Customers Should Know

Tens of thousands of Tricolor customers were left in the dark when the company stopped answering phones and emails overnight. The bankruptcy court entered a temporary moratorium on vehicle repossessions from February 23 through March 23, 2026.¹³

Vervent Inc., the court-appointed successor servicer, now manages roughly 100,000 loan accounts. According to the Tricolor loan portal, borrowers can continue paying through their existing methods, including PayNearMe or the online portal. Vervent holds vehicle titles and can release them and clear liens once loans are paid in full, and is offering loan modification and deferment options for borrowers experiencing hardship. Tricolor is no longer reporting to credit bureaus and is working with Experian and Equifax to remove past reporting history from borrower credit files.¹⁴

The Texas Department of Motor Vehicles opened an investigation into 157 complaints against Tricolor following the shutdown; financing-related complaints are being handled separately by the Texas Office of Consumer Credit Commissioner.¹³

Bank Losses Behind the Litigation

The disclosed losses give a sense of the stakes driving the civil litigation:

JPMorgan Chase took a $170 million charge-off; its warehouse line for Tricolor had reached about $770 million.
Fifth Third Bancorp reported losses between $178 million and $200 million.
Zions Bancorporation wrote off approximately $50 million.
Origin Bancorp placed $30.1 million in Tricolor loans on non-accrual status. Chu resigned from Origin’s board on September 7, 2025.
Barclays disclosed exposure, though the amount remained pending.

These figures come from bank disclosures and reporting on the collapse.¹⁵¹⁶ In the bond market, debt rated AAA by KBRA as recently as June 2025 fell from par to 78 cents on the dollar, and a lower-rated tranche dropped to 12 cents. In December 2025, KBRA downgraded all 34 outstanding ratings across seven Tricolor securitization trusts to default and then withdrew them, citing three consecutive months of missed interest payments and a lack of reliable collateral data.¹⁷

1
Auto Finance News. Tricolor’s Frantic End Was Sparked by a Phone Call From JPMorgan
2
Reuters. Auto Dealer Tricolor Files Bankruptcy, Moves to Liquidate
3
U.S. Department of Justice. CEO, CFO, COO Charged in Connection With Billion-Dollar Collapse of Tricolor Auto
4
Auto Remarketing. Unsealed Federal Indictment Details Depth of Tricolor Fraud
5
Inner City Press. SDNY Tricolor Seibold Proceedings
6
CourtListener. United States v. Chu Docket
7
Bloomberg. Tricolor Founder Daniel Chu Gets October Trial on Fraud Charges
8
Octus. Tricolor Implosion Creates First-of-Its-Kind Auto Loan Securitization Litigation
9
Reuters. JPMorgan, Barclays, Fifth Third Defeat Lawsuit Over Missed Red Flags at Tricolor
10
Bloomberg Law. Tricolor Downfall Is Rare Straight-to-Chapter 7 for Big Business
11
Inforuptcy. Bankruptcy Case Tricolor Auto Group LLC
12
Insurance Journal. Tricolor Holdings Founder May Access D&O Insurance
13
Eleven Flo. Tricolor Holdings Bankruptcy
14
Tricolor. Tricolor FAQ
15
Rohit Mittal Substack. What Fintech Founders and Lenders Can Learn From Tricolor
16
Auto Finance News. Tricolor CEO Daniel Chu Resigns From Origin Bank Board
17
KBRA. KBRA Downgrades and Withdraws Tricolor Auto Securitization Trust Ratings