The $3 Trillion Blind Spot
Here is a number: roughly $3 trillion. That is one widely used estimate of the private credit market, depending on how the market is defined.1 Private credit is a broad label for privately negotiated lending outside traditional public markets.2 It has become a major source of financing; and it is one that is unusually hard to see into. Private loans rarely trade, so many assets cannot be valued against a daily market price; regulators have also identified valuation opacity and significant data gaps.3 For many loans, no exchange sets the price.4 No daily market tests the mark.5
What happens when a fast-growing market is hard to see into? Two recent collapses offer a preview. Where individuals are described below as charged, the charges are allegations and those defendants are presumed innocent unless and until proven guilty and/or liable.
Tricolor Holdings, a subprime auto lender, filed for Chapter 7 bankruptcy in September 2025. In December, federal prosecutors in Manhattan charged founder and former CEO Daniel Chu and former COO David Goodgame with bank and wire fraud offenses, alleging that by August 2025 Tricolor “had pledged approximately $2.2 billion of collateral to lenders and investors” but “had only approximately $1.4 billion of real collateral.”6 Prosecutors alleged that the roughly $800 million gap resulted from a series of schemes including double-pledging and manipulation of collateral characteristics.7 Tricolor’s former CFO and a former finance executive pleaded guilty to fraud charges the day before the indictment was unsealed.8
That same September, First Brands Group, an auto-parts company reporting about $5 billion in annual net sales, filed for bankruptcy with just $12 million in cash and more than $9 billion in liabilities. In January 2026, prosecutors charged founder and former CEO Patrick James and his brother, former senior executive Edward James, alleging schemes involving fake and inflated invoices, double- and triple-pledged collateral, falsified financial statements, and billions of dollars of purported customer receivables that did not exist.9 A former executive pleaded guilty and is cooperating with the government.10
After the twin collapses, JPMorgan CEO Jamie Dimon offered a warning: “When you see one cockroach, there are probably more.”11
Regulators are now doing more than looking. U.S. Attorney Jay Clayton described a red flag: a market where “a large portion” of participants mark an asset at 75 while one or two mark it at 95 – particularly if the outliers earn fees based on the mark.12 SEC Chairman Paul Atkins has said the agency is monitoring private credit carefully and investigating allegations of fraud, while emphasizing that the SEC’s antifraud jurisdiction extends to private markets.13 SEC Enforcement Director David Woodcock has listed “fraudulent valuations and mismarking” among matters his division will continue to pursue and said the agency is monitoring stresses in private credit.14 And on August 18, 2026, the SEC charged three former Tricolor executives, alleging that they defrauded investors using double-pledged collateral.15 Woodcock said the alleged conduct involved “bogus collateral” and “violated the integrity of our private credit markets.”16
But that is the problem with a market that is hard to see into: by the time valuation problems or hidden collateral claims surface in bankruptcy or enforcement proceedings, much of the damage may already be done. Insiders may spot discrepancies, undisclosed pledges, or questionable marks long before outsiders can. The SEC whistleblower program is designed to encourage people with original information about possible securities-law violations to come forward.17 In a roughly $3 trillion blind spot, the whistleblower can be the flashlight.
This piece was written by Christina Milnor of Milnor Law PLLC
1 See Outlooks 2026: Private Credit, Moody’s Ratings (Jan. 21, 2026) (projecting private credit AUM to exceed $2 trillion in 2026 and approach $4 trillion by 2030), https://www.moodys.com/web/en/us/insights/credit-risk/outlooks/private-credit-2026.html; Client Alert: SDNY & SEC Signal White Collar Enforcement Risks to the Private Credit Market, Sher Tremonte LLP (May 29, 2026) (describing private credit as a ‘$3 trillion industry’), https://shertremonte.com/2026/05/29/client-alert-sdny-sec-signal-white-collar-enforcement-risks-to-the-private-credit-market/; cf. FSB Warns on Private Credit Vulnerabilities, Fin. Stability Bd. (May 6, 2026) (estimating $1.5-$2.0 trillion in assets at end-2024 and noting definitional and data gaps), https://www.fsb.org/2026/05/fsb-warns-on-private-credit-vulnerabilities/.
2 Fang Cai & Sharjil Haque, Private Credit: Characteristics and Risks, Fed. Reserve (Feb. 23, 2024), https://www.federalreserve.gov/econres/notes/feds-notes/private-credit-characteristics-and-risks-20240223.html.
3 See Fast-Growing $2 Trillion Private Credit Market Warrants Closer Watch, Int’l Monetary Fund (Apr. 8, 2024) (noting that private loans rarely trade and are often marked quarterly using models), https://www.imf.org/en/Blogs/Articles/2024/04/08/fast-growing-USD2-trillion-private-credit-market-warrants-closer-watch; Fin. Stability Bd., supra note 1, (identifying valuation opacity and data gaps).
4 See Fin. Stability Bd., supra note 1 (discussing widespread reliance on private credit ratings and a lack of public borrower ratings).
5 Id.
6 Press Release, U.S. Attorney’s Office for the Southern District of New York, CEO, CFO, COO Charged in Connection with Billion-Dollar Collapse of Tricolor Auto (Dec. 17, 2025), https://www.fdicoig.gov/news/investigations-press-releases/ceo-cfo-coo-charged-connection-billion-dollar-collapse-tricolor.
7 Id.
8 Id.
9 Press Release, U.S. Attorney’s Office for the Southern District of New York, First Brands Executives Charged with Multibillion-Dollar Fraud (Jan. 29, 2026), https://www.justice.gov/usao-sdny/pr/first-brands-executives-charged-multibillion-dollar-fraud.
10 Id.
11 Jim Edwards, Jamie Dimon Issues Private Credit Warning: ‘When You See One Cockroach, There Are Probably More,‘ Fortune (Oct. 15, 2025), https://fortune.com/2025/10/15/jamie-dimon-issues-private-credit-warning-when-you-see-one-cockroach-there-are-probably-more/.
12 Olivia Fishlow, Ava Benny-Morrison & Sridhar Natarajan, Private Credit Marks Drawing More Scrutiny from SDNY Prosecutors, Bloomberg Law (June 3, 2026), https://news.bloomberglaw.com/privacy-and-data-security/private-credit-marks-drawing-more-scrutiny-from-sdny-prosecutors.
13 Paul Atkins, Chairman, U.S. Securities and Exchange Commission, remarks at the Milken Institute Global Conference, Advancing a Modern Regulatory Framework (May 4, 2026), transcript at https://milkeninstitute.org/sites/default/files/2026-05/AdvancingModernRegulatoryFramework_Transcript_GC26_0.pdf.
14 David Woodcock, Director, SEC Division of Enforcement, Remarks at the MFA Legal & Compliance 2026 Conference (May 13, 2026), https://www.sec.gov/newsroom/speeches-statements/woodcock-remarks-mfa-legal-compliance-2026-conference-051326.
15 Press Release No. 2026-77, U.S. Securities and Exchange Commission, SEC Charges Former Executives with Fraud in Connection with $1.9 Billion Collapse of Subprime Auto Lender Tricolor (Aug. 18, 2026), https://www.sec.gov/newsroom/press-releases/2026-77-sec-charges-former-executives-fraud-connection-19-billion-collapse-subprime-auto-lender-tricolor.
16 Id.
17 Whistleblower Frequently Asked Questions, U.S. Sec. and Exch. Comm’n, https://www.sec.gov/enforcement-litigation/whistleblower-program/whistleblower-frequently-asked-questions (explaining that the program provides incentives for individuals to report possible federal securities-law violations and defining a whistleblower as a person who voluntarily provides original information in writing) (last updated May 2, 2025).
