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JPMorgan Chase was aware for more than a year of “serious material weaknesses in accounting practices” at Tricolor Holdings, the Texas-based subprime auto lender and retailer that collapsed in September, according to a civil lawsuit from its bankruptcy trustee.
According to the complaint filed by Anne Elizabeth Burns, the court-appointed trustee managing the Tricolor estate, a JPMorgan audit in February 2024 “revealed approximately $13 million in double pledged loans on collateral pledged to JPMorgan”.
“Doubled pledging” refers to the practice of securing multiple loans against a single piece of collateral, which lenders are left sharing without their knowledge.
In addition, “JPM’s auditor noted that of the 25 accounts on which it performed an ageing test, three accounts were repossessed as of January 31, 2024, but were not marked as such,” referring to an analysis that tracked the status of individual Tricolor auto loans over time.
The bank, with the assistance of FTI Consulting, subsequently launched another investigation in August 2025 over automobiles that had been double-pledged by Tricolor to raise more debt. JPMorgan concluded by the end of that month that “Tricolor had failed to reconcile its bank statements with the company’s internal financial records”.
Less than two weeks later, Tricolor filed for Chapter 7 bankruptcy, a rarely used protocol where a business looks to immediately shut down and liquidate. JPMorgan eventually took a $170mn charge on its exposure to Tricolor.
JPMorgan, according to the trustee lawsuit against Daniel Chu, Tricolor’s founder and chief executive, contacted the US Department of Justice and he was charged along with the company’s chief financial officer David Goodgame with fraud by federal prosecutors on Wednesday. Two other top Tricolor executives have pleaded guilty to fraud and are co-operating with the US justice department.
The bankruptcy lawsuit, which alleges civil fraud, includes more specific details on alleged wrongdoing at Tricolor than had been previously broached in the criminal indictment.
The lawsuit said that the trustee’s forensic accountant uncovered a multiyear scheme that featured more than 38,000 “false finance receivables accounts” which it said were used to pump up the company’s collateral-based borrowings by $683mn from its lenders, including JPMorgan, Fifth Third Bank and other financial institutions.
The trustee alleges that Chu sought to inflate the size of the company’s balance sheet in order to show that Tricolor was growing quickly in an attempt to wring out high pay — including $17mn of remuneration in 2025 alone — to fund a “lavish lifestyle” as well as “opulent homes” that stretched from California to Texas to Florida.
Chu had also run up millions of dollars in personal expenses on his company credit card, which included charges for luxury travel for his family, nannies, dog-training services and intravenous vitamin treatments, according to the lawsuit.
The company’s accounting staff and board had at times tried to challenge both Tricolor’s bookkeeping practices as well as Chu’s pay but to little avail, the trustee’s investigation determined.
This week’s criminal indictment of Chu described internal Tricolor discussions during the company’s August implosion about how to assign blame to the company’s lenders, using as a playbook the litigation that arose out of the collapse of Enron, the energy trading company riven by accounting fraud.
According to Tricolor emails produced in the civil complaint, Chu and Goodgame studied the Enron precedent by quizzing Grok, the AI model developed by Elon Musk’s xAI.
“Enron raises the blood pressure of the lender when they see that . . . It, it has to, right? . . . Cause who wants to be thrown in the category?” Chu allegedly said to colleagues in August, according to the complaint.
“That Enron case is fucking perfect, I think.”
JPMorgan declined to comment. Lawyers for Chu did not immediately respond to a request for comment.
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