A federal judge rejected on Friday former Tricolor Holdings Chief Executive Daniel Chu's request to dismiss the top charge in a criminal indictment accusing him of systematic fraud that led to the now-bankrupt subprime auto lender's collapse.
U.S. District Judge Kevin Castel in Manhattan said prosecutors provided sufficient detail to support charging Chu with organizing a continuing financial crimes enterprise.
Convicted defendants face a mandatory minimum 10-year prison term and possibly up to life in prison, plus a maximum $10 million fine.
Chu has pleaded not guilty to all charges in his eight-count indictment, including bank fraud, securities fraud, wire fraud and conspiracy. A trial is scheduled for January 25, 2027.
"As the court recognized, the lead count of the indictment is 'an infrequently charged crime' that 'has been charged only a handful of times anywhere' and raises important legal questions," Chu's lawyer Matthew Schwartz said in an email. "Many of the allegations that have been made against Mr. Chu are inaccurate, as will be clear when the real facts come out."
The bankruptcies last September of Tricolor and auto parts supplier First Brands highlighted the risk of private credit, where investors provide capital to businesses that receive less regulatory oversight than businesses tapping public markets.
'DOUBLE-PLEDGING' OF COLLATERAL ALLEGED
Tricolor provided auto loans primarily in lower-income Hispanic communities in the southwestern United States.
Prosecutors said Chu led an elaborate scheme to defraud Tricolor's banks and investors, including by falsifying auto loan data to conceal delinquencies and "double-pledging" approximately $800 million of collateral.
They also said Chu enriched himself, including a purchase of property in Beverly Hills, California, just two weeks before Tricolor filed a Chapter 7 bankruptcy liquidation.
Chu said the indictment failed to identify what enterprise he allegedly ran, how he allegedly operated it, who else was involved, and how he allegedly profited.
But the judge said the indictment "more than satisfies" the applicable legal standard by identifying a series of 10 violations, victims, credit agreements and dates, and describing the alleged frauds in considerable detail.
In June, former Tricolor Chief Operating Officer David Goodgame pleaded guilty to fraud and conspiracy charges and agreed to cooperate with prosecutors. Two other Tricolor executives pleaded guilty before charges against Chu were announced last December.
