Bankrupt subprime auto dealer Tricolor Holdings is preparing to sue the company’s founder for allegedly maste
rminding a massive fraud that led to the company’s collapse into bankruptcy, according to a court filing.
Daniel Chu is already facing probes by the U.S. Justice Depart
ment and the U.S. Securities and Exchange Commission, Tricolor’s bankruptcy trustee said in a filing in federal court in Dallas.
The trustee asked a judge to limit Chu’s access to $15 million worth of insurance that normally kicks in when directors
and officers of a company are facing legal problems related to their corporate duties.
Any money that Chu would get from the directors and officers insurance would reduce what is available to ab
out a dozen other people who also have a claim on the policy, Tricolor’s trustee said in the Tuesday filing.
Tricolor filed bankruptcy in September after shutting down more than 60 locations across the US Southwest. With
in weeks, lawyers for a court-approved trustee told the federal judg
e overseeing the insolvency case that Tricolor was the victim of a “pervasive fraud” of “extraordinary proportion.”
Lawyers for Chu did not return emails seeking comment on the trustee’s allegations.
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A preliminary examination of Tricolor’s records shows that at least 29,000 loans pledged to creditors were tie
d to vehicles already s
ecuring other debts. Federal investigators are also looking into whether Tricolor pledged the same collateral to different creditors.
The bankruptcy trustee sought to put Chu, who founded Tricolor in 2007, at the heart of the company’s operations, stating that he oversaw all of its lending, a
ccounting, securitization and financial reporting.
“The evidence the Trustee has obtained to date places Mr. Chu firm
ly at the center of the fraud that led to Tricolor’s sudden collapse,” the filing said.
As concerns over the company were surfacing this summer, Chu tol
Tricolor’s banking partners that he knew nothing about the alleged fraud, and neither Chu nor any other Tricolor execu
ives have been charged with wrongdoing. Chu sought to secure rescue financing for the company in Augus
t, but those efforts collapsed when financial advisers concluded that the hole in its finances was too large.
The case is Tricolor Holdings, LLC, 25-33487, U.S. Bankruptcy Court, Northern District of Texas (Dallas).