Tricolor Holdings founder Daniel Chu, who faces federal fraud charges related to the collapse of the subprime auto-loan firm, won court approval to use company insurance policies to pay for his defense costs, a judge ruled Wednesday.
US Bankruptcy Judge Michelle V. Larson agreed during a Dallas court hearing to free $5 million in directors and officers insurance to pay legal bills for Chu and others, including Tricolor itself, related to federal investigations of the company and its former managers.
Prosecutors in New York have accused Chu of conspiring to defraud lenders and investors through various schemes, including “double-pledging” auto-loan collateral and manipulating descriptions of the loans. Chu has pleaded not guilty to the charges.
Texas-based Tricolor filed for bankruptcy in September after shutting more than 60 locations across Texas and the US Southwest.
Larson sided with Chu over the insurance proceeds, rejecting a request from the trustee overseeing Tricolor’s liquidation to cap how much he could receive. The trustee had argued that no single party should be able to use up more than 10% of the policy.
The judge declined to release two other policies that would cover $10 million in similar claims. Any Tricolor former manager who wants access to those policies must file a new request to free up the additional insurance, she said.
Criminal and regulatory investigations of Tricolor’s collapse are likely to eat up all of the company’s $15 million in director and officer insurance, Larson said in court.
To control distribution of the proceeds, Tricolor and others who are covered by the insurance will have a chance to object to any payout. Those objections would first be considered by the insurance company. If the dispute cannot be resolved, Larson said she would decide whether the claim was legitimate.
The bankruptcy case is Tricolor Holdings, LLC, 25-33487, US Bankruptcy Court, Northern District of Texas (Dallas). The criminal case is US v Chu, 25-cr-579, US District Court, Southern District of New York.
Photo: Daniel Chu arrives at federal court in New York on Jan. 13. Photographer: Bing Guan/Bloomberg
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