You are a free subscriber to Me and the Money Printer. To upgrade to paid and receive the daily Capital Wave Report - which features our Red-Green market signals, subscribe here. The Department of Justice Takes Out a Flashlight And Reveals...The Tricolor Auto Collapse and the First Crack in Private Credit
Dear Fellow Traveler, Two weeks ago, I wrote that fraud doesn’t reveal itself through greed, ambition, or bad character. It reveals itself through friction and liquidity exits. When liquidity is abundant, complexity looks like competence. When money is cheap, nobody asks to see the loan tape. When credit rolls easily, reputation substitutes for collateral. And then one day, someone turns on the light. Possible Life in Prison Plus 100 Years?This week, U.S. prosecutors unsealed an indictment against senior executives of Tricolor Holdings, a subprime auto lender that collapsed into bankruptcy this fall. It’s… about as shocking as a recent M. Night Shyamalan twist… So… not that shocking. According to the DOJ, Tricolor’s founder and CEO, Daniel Chu, allegedly orchestrated a years-long scheme involving double-pledged collateral, manipulated loan data, and misrepresentations to banks and private credit lenders. These are allegations. The defendants are presumed innocent. But the indictment is very damning… The structure matters more than the personalities. Because Tricolor wasn’t a crypto exchange or a meme stock. It was a boring, asset-backed, cash-flowing machine inside the plumbing of the credit system. That’s exactly why this matters. Tricolor operated in a corner of finance that Wall Street calls “defensive.” Subprime auto lending. We’re talking used cars and high-yield borrowers with steady payment streams. Founded in 2007, the company focused on Hispanic customers with limited credit history. It was a niche that looked recession-resistant. By 2025, Tricolor had grown into the third-largest used-car retailer in Texas and California. It had 65 retail centers, 1,500 employees, $1 billion in annual revenue, and 60,000 outstanding car loans, according to court filings. This was not a moonshot. It was pitched as institutional. And in institutional deals, diligence degrades. Everyone assumes someone else checked the math. That assumption is where systems rot. How Double-Pledging WorksHere’s what prosecutors allege Tricolor did. When you finance a car, your loan becomes an asset on someone’s books. The lender can use that loan as collateral to borrow money from a bank or private credit fund. You pledge the receivable, you get cash. Simple enough. But here’s the rule: one loan, one pledge. Double-pledging means taking the same loan and simultaneously pledging it to multiple lenders. Lender A believes it has a secured claim to the receivable. So does Lender B. Neither knows the other exists. It works as long as nobody compares notes and cash keeps flowing. According to prosecutors, Tricolor pledged $2.2 billion in collateral while possessing only $1.4 billion in actual assets. That $800 million gap? It was fictitious or ineligible collateral. Here we had loans pledged twice, delinquent loans, or loans that didn’t exist. This isn’t exotic. It’s one of the oldest tricks in leveraged finance. There are probably quite a few people out there doing this right now… But we don’t tend to see the impact until we have a liquidity event and a run on capital. When the Questions StartedFraud doesn’t collapse when people lie. It collapses when someone asks a boring question. In summer 2025, one lender noticed discrepancies. Loans marked as current weren’t showing expected reductions in principal balance. The math didn’t add up. That’s when the flashlight came out. According to recorded calls in the indictment, executives discussed how dangerous it would be if auditors demanded real-time verification. CEO Daniel Chu allegedly said: “Where we would have an issue is if they sent an auditor and they said, pull this up on your screen, right, that would be a problem.” CFO Jerome Kollar agreed: “Yes. That would be bad.” The system wasn’t failing due to defaults. It was failing because verification arrived late. Editor’s Note: Want to Join the Capital Wave Report? We called the April selloff down to the day on February 21… and the most recent rally… down to the day on September 23… That’s what Capital Wave is all about. It’s the ultimate form of insurance for investors and traders in a world dominated by volatility and non-stop policy changes. Try it for a month… or get a great annual deal, at the link above… Then, There’s The Enron PlayWhen Chu realized the game was over, he reportedly didn’t panic. He strategized. On a recorded call, he allegedly compared Tricolor to Enron… Yes… that Enron. So, he proposed using that comparison as leverage against the banks. Remember… if you own the banks $1 million, it’s your problem. But if you owe them $1 billion? Well, that’s their problem. The indictment suggests that Tricolor would blame banks for ignoring red flags. That they’d threaten litigation and extract a settlement. The indictment quotes him: “Enron obviously has a nice ring to it, right? I mean, Enron raises the blood pressure of the lender when they see that.” He added: “That Enron case is fucking perfect, I think.” Woof… That’s the sound of a system that only works if no one looks. The $6.25 Million ExitEven as the fraud unraveled, Chu kept extracting. His salary had risen to $2 million. He’d collected a $2 million bonus for 2024 and was owed $15 million more for 2025. Over 24 months, Tricolor paid him $19.3 million. And after acknowledging the company was “definitely insolvent,” Chu allegedly directed Kollar to pay him the final installments of his bonus. On August 19 and 20, three weeks before 1,000 employees were placed on unpaid leave, Chu received $6.25 million. On August 27, he bought a multi-million-dollar property in Beverly Hills. Twelve days later, Tricolor filed Chapter 7. Seriously… who owns the movie rights to this shit show? The ChargesTricolor’s bankruptcy left lenders exposed to over $900 million. Daniel Chu faces charges under the Continuing Financial Crimes Enterprise statute. That’s an incredible charge carrying a mandatory minimum of 10 years, with a maximum life sentence. There’s also conspiracy, bank fraud, and wire fraud, all with maximum potential penalties in the decades. David Goodgame, the COO, faces conspiracy, bank fraud, and wire fraud. Each charge has a maximum of 30 years. Jerome Kollar and Ameryn Seibold have already pleaded guilty and are cooperating. Did JPM Cause This? Maybe… Maybe Not…The real story isn’t the indictment. It’s the market reaction. Regional banks sold off hard this fall. JPMorgan’s CEO warned that lending standards had grown too lax. His phrase: “When you see one cockroach, there are probably more.” All at the same time, JPM sank the repo market and might have fueled the exposure to this alleged fraud. That’s not about Tricolor. That’s about systemic exposure. Tricolor didn’t invent anything new. Warehouse lines, borrowing bases, securitized receivables… these structures exist everywhere in private credit. What made Tricolor dangerous was scale combined with trust. In this case, reputation replaced verification. And liquidity replaced discipline. Until it didn’t. We’re not at the end of a credit cycle. We’re at the beginning of verification returning. Tricolor is not the story. It’s the first crack. My question remains the same as two weeks ago… Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. 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