Judge Rules Tricolor Founder Can Utilize Insurance for Fraud Defense

Tricolor Holdings founder Daniel Chu, who is currently facing federal fraud charges linked to the downfall of the subprime auto-loan firm, has received court approval to utilize company insurance policies for his defense costs. This ruling was made by a judge on Wednesday.

During a hearing in Dallas, US Bankruptcy Judge Michelle V. Larson authorized the release of $5 million from directors and officers insurance to cover legal expenses for Chu and others, including Tricolor itself. This decision pertains to ongoing federal investigations into the company and its former management.

Federal prosecutors in New York have accused Chu of conspiring to defraud lenders and investors through various deceptive practices. These include “double-pledging” auto-loan collateral and altering descriptions of the loans. Chu has entered a plea of not guilty regarding these allegations.

Tricolor, based in Texas, filed for bankruptcy in September after closing over 60 locations across Texas and the Southwestern United States.

Judge Larson ruled in favor of Chu concerning the insurance proceeds, dismissing a request from the trustee overseeing Tricolor’s liquidation. The trustee had argued that no single party should be allowed to utilize more than 10% of the policy. However, the judge found in favor of Chu’s request.

Additionally, the judge opted not to release two other policies that could cover $10 million in similar claims. Any former manager of Tricolor wishing to access these policies will need to submit a new request for the additional insurance, as stated by the judge.

According to Larson, the ongoing criminal and regulatory investigations into Tricolor’s collapse are likely to exhaust the company’s $15 million in director and officer insurance.

To manage the distribution of the insurance proceeds, Tricolor and other covered parties will have the opportunity to contest any payouts. These objections will first be reviewed by the insurance company. If a resolution cannot be reached, Larson indicated that she would determine the legitimacy of the claim.

The bankruptcy case is identified as Tricolor Holdings, LLC, 25-33487, in the US Bankruptcy Court for the Northern District of Texas (Dallas). The related criminal case is US v Chu, 25-cr-579, in the US District Court for the Southern District of New York.

Photo: Daniel Chu arrives at federal court in New York on Jan. 13. Photographer: Bing Guan/Bloomberg

Copyright 2026 Bloomberg.

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Legislation
Fraud

Tricolor Holdings founder Daniel Chu, who is currently facing federal fraud charges linked to the downfall of the subprime auto-loan firm, has received court approval to utilize company insurance policies for his defense costs. This ruling was made by a judge on Wednesday.

During a hearing in Dallas, US Bankruptcy Judge Michelle V. Larson authorized the release of $5 million from directors and officers insurance to cover legal expenses for Chu and others, including Tricolor itself. This decision pertains to ongoing federal investigations into the company and its former management.

Federal prosecutors in New York have accused Chu of conspiring to defraud lenders and investors through various deceptive practices. These include “double-pledging” auto-loan collateral and altering descriptions of the loans. Chu has entered a plea of not guilty regarding these allegations.

Tricolor, based in Texas, filed for bankruptcy in September after closing over 60 locations across Texas and the Southwestern United States.

Judge Larson ruled in favor of Chu concerning the insurance proceeds, dismissing a request from the trustee overseeing Tricolor’s liquidation. The trustee had argued that no single party should be allowed to utilize more than 10% of the policy. However, the judge found in favor of Chu’s request.

Additionally, the judge opted not to release two other policies that could cover $10 million in similar claims. Any former manager of Tricolor wishing to access these policies will need to submit a new request for the additional insurance, as stated by the judge.

According to Larson, the ongoing criminal and regulatory investigations into Tricolor’s collapse are likely to exhaust the company’s $15 million in director and officer insurance.

To manage the distribution of the insurance proceeds, Tricolor and other covered parties will have the opportunity to contest any payouts. These objections will first be reviewed by the insurance company. If a resolution cannot be reached, Larson indicated that she would determine the legitimacy of the claim.

The bankruptcy case is identified as Tricolor Holdings, LLC, 25-33487, in the US Bankruptcy Court for the Northern District of Texas (Dallas). The related criminal case is US v Chu, 25-cr-579, in the US District Court for the Southern District of New York.

Photo: Daniel Chu arrives at federal court in New York on Jan. 13. Photographer: Bing Guan/Bloomberg

Copyright 2026 Bloomberg.

Topics
Legislation
Fraud