(Bloomberg) -- Bankrupt subprime auto dealer Tricolor Holdings is preparing to sue the company's founder, who the trustee alleges was at the center of a massive fraud that led to the company's collapse into bankruptcy, according to a court filing.
Daniel Chu is already facing probes by the US Justice Department and the US Securities and Exchange Commission, Tricolor's bankruptcy trustee said in a filing in federal court in Dallas. The trustee said it "expects to file" a so-called adversary complaint against Chu by the end of the month.
Chu declined to comment.
The trustee asked a judge to limit Chu's access to $15 million worth of insurance that normally kicks in when directors and officers of a company are facing legal problems related to their corporate duties.
Any money that Chu would get from the directors and officers insurance would reduce what is available to about a dozen other people who also have a claim on the policy, Tricolor's trustee said in the Tuesday filing.
In the filing, the trustee said that while its probe of Tricolor's books isn't complete, current evidence implicates Chu in "knowingly double-pledging tens of thousands of loans," "overriding internal controls" and "directing subordinates to falsify, manipulate, or ignore accounting irregularities."
As concerns over the company were surfacing this summer, Chu told Tricolor's banking partners that he knew nothing about the alleged fraud, and neither Chu nor any other Tricolor executives have been charged with wrongdoing.
Tricolor filed bankruptcy in September after shutting down more than 60 locations across the US Southwest. Within weeks, lawyers for a court-approved trustee told the federal judge overseeing the insolvency case that Tricolor was the victim of a "pervasive fraud" of "extraordinary proportion."
A preliminary examination of Tricolor's records shows that at least 29,000 loans pledged to creditors were tied to vehicles already securing other debts. Federal investigators are also looking into whether Tricolor pledged the same collateral to different creditors.
Chu sought to secure rescue financing for the company in August, but those efforts collapsed when financial advisers concluded that the hole in its finances was too large.
The bankruptcy trustee sought to put Chu, who founded Tricolor in 2007, at the heart of the company's operations, stating that he oversaw all of its lending, accounting, securitization and financial reporting.
"The evidence the Trustee has obtained to date places Mr. Chu firmly at the center of the fraud that led to Tricolor's sudden collapse," the filing said.
The case is Tricolor Holdings, LLC, 25-33487, US Bankruptcy Court, Northern District of Texas (Dallas)
(Updates with quote from court filing in the sixth paragraph. A previous version of the story was corrected to remove characterization of planned suit.)
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