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Two former senior executives at the collapsed subprime car lender Tricolor Holdings pleaded not guilty to fraud and financial crime charges in New York federal court on Tuesday.
Daniel Chu, Tricolor’s founder and former chief executive, and David Goodgame, its former chief operating officer, entered their pleas at an arraignment in Manhattan after prosecutors unveiled charges against them last month.
They are accused of operating the company, which collapsed into liquidation in September, “through systemic fraud”, according to an indictment.
“Mr Chu enters a plea of not guilty because he is not guilty, and we look forward to a trial,” his lawyer Matthew Schwartz told the court. Goodgame’s lawyer, Arnold Spencer, entered his client’s not guilty plea in court on his behalf.
Chu and Goodgame appeared in court before Judge Kevin Castel, wearing suits for the short hearing and did not speak. Both declined to comment to the FT.
Tricolor received triple-A ratings as it borrowed in credit markets, and its sudden unravelling last year caused alarm over lending standards and possible cracks in debt markets.
Federal prosecutors in Manhattan said “multiple Tricolor executives repeatedly defrauded lenders” at Chu’s direction, including by using the same collateral to back multiple loans. They also manipulated data to make “near-worthless” assets appear to meet lenders’ requirements, prosecutors alleged.
After lenders voiced concerns last summer, the company transferred more than $6mn to Chu, according to the indictment.
Tricolor specialised in selling used cars and providing subprime financing to lower-income Hispanic customers who had limited or no credit history. At its peak it employed more than 1,500 people and generated about $1bn in annual revenue.
It borrowed from banks including JPMorgan and Barclays, and its sudden bankruptcy left lenders facing possible losses of hundreds of millions of dollars.
In total, lenders provided more than a billion dollars to Tricolor based on fabricated data and false statements, the indictment said. The company also bundled its car loans into securities, which were sold to investors.
Prosecutors have charged Chu and Goodgame with bank fraud and wire fraud as well as engaging in a “continuing financial crimes enterprise”, a charge that covers groups of people acting in concert to commit a series of violations.
Two other employees, former chief financial officer Jerome Kollar and former finance executive Ameryn Seibold, pleaded guilty to federal charges related to Tricolor and are co-operating with the government, prosecutors said last month.
