Former CEO of Subprime Auto Lender Sentenced to Four Years in
Prison for $67 Million Fraud Schemes
James Collins, the former CEO of Evanston, Illinois-based subprime auto lender Honor Finance LLC, has been sentenced to four years in federal prison for orchestrating two fraudulent schemes that resulted in approximately 67 million in restitution. The case, investigated by the FBI and the U.S. Securities and Exchange Commission, highlights a complex web of financial deceit involving false reporting, misappropriation of funds, and the exploitation of investors and financial institutions.
Key Details of the Fraud Schemes
- Timeline and Participants: Between 2015 and 2018, Collins, along with co-defendants including Honor Finance’s former Chief Operating Officer Robert DiMeo, engaged in two primary fraud schemes. DiMeo pleaded guilty to mail fraud in 2022 and is awaiting sentencing. Collins’ schemes targeted a
- 200millionwarehouselineofcreditprovidedbyabanktofundHonorFinance’ssubprimeloanportfolioandinvolvedthemisappropriationof
- 200 million warehouse line of credit provided by a bank to fund Honor Finance’s subprime loan portfolio and involved the misappropriation of 5.3 million from the company.
- Major Events: Collins submitted false information to the bank to avoid posting additional collateral and maintain access to the credit line. He also manipulated the selection of loans for a trust established to securitize and sell loans as bonds, including delinquent loans that were ineligible for inclusion. Additionally, Collins funneled funds through a shell company, LHS Solutions, to inflate costs and divert commissions from vehicle warranty sales.
The $62 Million Bank Fraud Scheme
Collins’ first scheme centered on deceiving a bank that had provided Honor Finance with a $200 million warehouse line of credit. This credit line was essential for funding the company’s subprime auto loan portfolio. From 2015 to 2018, Collins and his co-schemers submitted false information to the bank to avoid posting additional collateral. This allowed Honor Finance to retain access to funds it might otherwise have been required to return.
Collins further exploited the bank by selecting delinquent loans for inclusion in a trust established to securitize and sell thousands of loans as bonds to investors. These loans were ineligible for inclusion because money had already been advanced to borrowers through improper accounting entries. Collins concealed the ineligibility of these loans from the bank, bond investors, and rating agencies. As a result, the bank suffered losses of approximately $62 million.
The $5.3 Million Misappropriation Scheme
In a separate scheme, Collins misappropriated approximately $5.3 million from Honor Finance. He established a shell company, LHS Solutions, to act as a middleman between Honor Finance and a third-party supplier of GPS devices. Instead of purchasing the devices directly from the supplier, Collins had LHS Solutions buy the devices and then sell them to Honor Finance at inflated prices. The difference between the actual cost and the inflated price was pocketed by Collins and his co-schemers. Additionally, Collins diverted commissions from the sale of vehicle warranties that should have gone to Honor Finance. This dual-layered fraud not only drained company resources but also undermined the trust of investors and business partners.
Legal Proceedings and Sentencing
Collins pleaded guilty in 2023 to a federal mail fraud charge and stipulated to bank fraud. His sentencing on Wednesday marked the culmination of a years-long investigation led by the FBI and the U.S. Securities and Exchange Commission. U.S. District Judge Franklin W. Valderrama sentenced Collins to four years in prison and ordered him to pay $67 million in restitution.
Robert DiMeo, Honor Finance’s former Chief Operating Officer, pleaded guilty to mail fraud in 2022 and is awaiting sentencing. The case underscores the collaborative efforts of federal agencies in addressing complex financial crimes.
Broader Implications
The case against James Collins highlights the vulnerabilities in subprime auto lending and the potential for abuse within financial systems. By exploiting regulatory loopholes and manipulating financial reporting, Collins caused significant harm to a major bank and investors. The sentencing sends a strong message about the consequences of corporate fraud and the importance of accountability in the financial sector.
The investigation was led by Acting U.S. Attorney Morris Pasqual for the Northern District of Illinois and FBI Special Agent-in-Charge Douglas S. DePodesta. Assistant U.S. Attorneys Matthew Getter and Paige A. Nutini represented the government in the case.
Conclusion
James Collins’ fraudulent activities at Honor Finance LLC serve as a stark reminder of the risks associated with subprime lending and the need for robust oversight in financial markets. His four-year prison sentence and $67 million restitution order underscore the seriousness of his crimes and the commitment of federal authorities to holding corporate executives accountable for their actions. As the case against co-defendant Robert DiMeo progresses, the full extent of the damage caused by these schemes will continue to unfold, offering lessons for regulators, investors, and the broader financial community.