When subprime auto lender Tricolor collapsed in September, it caused some on Wall Street to wonder if this was the start of a larger trend.

Tricolor allegedly committed “pervasive fraud” in order to get funding. The company owed lenders at least $2 billion at the time of bankruptcy.

Banking giant JPMorgan took a $170 million hit from the company’s implosion. And CEO Jamie Dimon was candid in his response:

My antenna goes up when things like that happen. And I probably shouldn’t say this, but when you see one cockroach, there are probably more… Everyone should be forewarned on this.

A few weeks after the Tricolor subprime lending disaster, First Brands, a major auto parts supplier, filed for bankruptcy.

And yesterday, Bloomberg News revealed that there was apparently massive fraud taking place at First Brands as well. Here’s Bloomberg:

First Brands Group founder Patrick James ordered members of the finance department to transfer hundreds of millions of dollars of corporate cash to his personal bank account, a family trust and various businesses he controlled, the company’s new chief executive said during testimony in federal court Monday.

Hundreds of millions of dollars misappropriated? James allegedly bought 17 exotic supercars, homes in Malibu and the Hamptons, private celebrity chefs, and more.

First Brands also allegedly falsified invoices and bank statements to get loans. It was nothing fancy. They basically changed the numbers on real invoices to reflect values 50-100x higher. They also used the same (fake) invoices to get loans from multiple lenders.

These types of frauds can go undiscovered for years, even decades. But now that a few big ones have popped off, every lender in the country is scouring their books.

And they just might find more nasty surprises…

Your Rundown for Wednesday, November 12, 2025...

More to Come?

Yesterday, Bloomberg reported that financial giant BlackRock just took a 100% loss on a private loan to Renovo, a home improvement company.

Just a month ago, BlackRock had valued the loan at 100 cents on the dollar, meaning they viewed it as safe. But today it's marked to zero. Renovo abruptly filed for bankruptcy last week.

There’s been no fraud reported on this deal, yet anyways. But it’s another shock to the credit world that will set the sector on edge.

BlackRock held the majority of Renovo’s $150 million in private debt. But don’t worry, this busted deal alone isn’t a threat to their bottom line. BlackRock is an absolute giant, and it would take something much larger to damage their balance sheet.

It’s the trend we should be paying attention to. If fraud and bad underwriting continue to pop up, it could create a nasty cycle where lenders are suddenly scrutinizing their credit and finding cockroaches all over the place.

The scale of recent frauds is also a major concern. How did these people manage to steal such large sums in broad daylight? And how did they get away with it for so long?

Partially because despite tech advances, our credit/lending system still largely runs on old-fashioned paperwork.

When a company needs to borrow from a lender, they often use copies of bank statements, invoices, and inventory lists to secure the loan. These types of documents can be easily faked, especially with modern AI.

Now technically, the lender is supposed to double-check everything. It’s part of the underwriting process. For example, if they’re lending a company money based on invoices the company is owed, they should call at least a few of those counterparties and make sure everything’s on the up and up.

But loan underwriting isn’t what it once was. Some lenders appear to have been lax the past few years with their lending standards and practices.

It doesn’t help that today the credit world is an increasingly complex web. It’s not just banks and bonds anymore. There is now a massive private credit market with all sorts of complex entities operating in dark corners across America. Regulators and auditors who attempt to get a grasp on the market are often baffled by the money mazes they find.

Ever since the real estate bubble began around 2002, our entire economy has been increasingly dependent on credit to function. And today, leverage is once again high.

Just a few more dominoes could set something ugly in motion. Remember that in July of 2007, the collapse of two Bear Stearns hedge funds signaled the beginning of the global financial crisis. But it took time to play out, with more stress arriving that fall and winter, and Bear Stearns itself eventually collapsing in March of 2008.

The point is that for a while after the collapse of those two hedge funds in 2007, it seemed as if they were isolated incidents. Just hiccups in an otherwise healthy system. But the entire thing was about to come crashing down.

We’re not saying that these recent credit cockroaches signal an impending disaster in the same way. But if more cockroaches begin to emerge from the walls, it’ll be time to sit up and pay full attention.

Paradigm analysts are staying on top of this story and we’ll update you if we see more concerning signals.

Market Rundown for Wednesday, November 12, 2025

S&P 500 futures are up 0.30% to 6,890.

Oil is down 1% to $60.40 for a barrel of WTI.

Gold’s up 0.60% to $4,140.40 per ounce.

And Bitcoin is up 2.10% to $105,030.