JPMorgan Chase knew for over a year about “serious material weaknesses in accounting practices” at Tricolor Holdings, the Texas-based subprime auto lender that abruptly shuttered in September, a new civil lawsuit alleges.
Accounting Red Flags Ignored at Collapsed Lender
The bankruptcy trusteeS complaint details a pattern of alleged fraud and mismanagement at Tricolor, raising questions about oversight by JPMorgan Chase.
- JPMorgan discovered Tricolor was using the same assets to secure multiple loans, a practice known as “double pledging.”
- the company allegedly inflated borrowing capacity by $683 million.
- tricolor’s founder, Daniel Chu, is accused of using company funds for a lavish lifestyle, including luxury travel and personal services.
- Internal Tricolor discussions revealed a strategy to deflect blame onto lenders, drawing parallels to the Enron scandal.
The lawsuit, filed by Anne Elizabeth Burns, the court-appointed trustee managing the tricolor estate, paints a disturbing picture of financial manipulation and a desperate attempt to mask the company’s deteriorating condition. The February 2024 JPMorgan audit specifically “revealed approximately $13 million in double pledged loans on collateral pledged to JPMorgan.” “Doubled pledging” is the practice of using the same asset to secure multiple loans, leaving lenders unknowingly sharing risk.
Further scrutiny revealed additional issues. JPMorgan’s auditor noted that, of 25 accounts examined as of January 31, 2024, three repossessed accounts hadn’t been properly marked as such, skewing the status of Tricolor’s auto loans.
JPMorgan launched another investigation in August 2025, focusing on the double-pledged automobiles used to secure additional debt. By the end of the month, the bank concluded that Tricolor had failed to reconcile its bank statements with its internal financial records. Less than two weeks later, on September 1, Tricolor filed for Chapter 7 bankruptcy-a process involving immediate shutdown and liquidation.
JPMorgan ultimately took a $170 million charge related to its exposure to Tricolor. The bank, according to the trustee’s lawsuit, contacted the US Department of Justice after discovering the alleged fraud. Federal prosecutors later charged Daniel Chu, Tricolor’s founder and chief executive, along with Chief Financial Officer David Goodgame with fraud on Wednesday. Two other top executives have pleaded guilty to fraud and are cooperating with authorities.
The civil lawsuit alleges a more detailed scheme than previously outlined in the criminal indictment. The trustee’s forensic accountant uncovered more than 38,000 “false finance receivables accounts” allegedly used to inflate the company’s collateral-based borrowings by $683 million from lenders, including JPMorgan, Fifth Third Bank, and other financial institutions.
The trustee alleges Chu sought to artificially inflate the company’s balance sheet to demonstrate rapid growth,justifying a hefty salary-$17 million in 2025 alone-to fund a “lavish lifestyle” and “opulent homes” in California,Texas,and Florida. He also allegedly charged millions of dollars in personal expenses to his company credit card, including luxury travel for his family, nannies, dog-training services, and intravenous vitamin treatments.
According to the lawsuit, Tricolor’s accounting staff and board members occasionally challenged the company’s bookkeeping practices and Chu’s compensation, but their concerns were largely dismissed.
Internal Tricolor discussions, revealed in the criminal indictment of Chu, explored strategies to blame lenders for the company’s collapse, referencing the litigation surrounding the Enron scandal. Emails produced in the civil complaint show Chu and Goodgame even consulted Grok, the AI model developed by xAI, for insights into the Enron case.
“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 instantly respond to a request for comment.
