Salvaging the Sovereign District

Salvaging the Sovereign District Biden-era prosecutors in the Southern District of New York are still using wild-man tactics. Jamie McDonald’s got his work cut out for him. Sworn in on July 29 as the new U.S. attorney for the Southern District of New York, he inherits one of the DOJ’s great reclamation projects: making the Southern District sovereign again. And, despite the best efforts of his predecessor Jay Clayton—now director of national intelligence—recent prosecutions show the job’s not close to finished. “Sovereign” was once the word for the SDNY—famously measured in how it wielded power, no matter how rabid Main Justice might be. But, under Merrick Garland’s watch, the Southern District discovered it was fun to play Batman. Within a hundred days of Biden taking office, SDNY agents raided the home and office of Rudy Giuliani—then President Donald Trump’s personal lawyer—seizing his phones and computers. After a year and a half of leaks, the office closed the investigation without charges. When Mayor Eric Adams blamed the Biden administration for the migrant crisis in 2024, the office conveniently saw fit to indict him on counts of bribery and wire fraud. The Justice Department’s Acting AG, Emil Bove, later stated that U.S. Attorney Damian Williams—Garland’s former clerk, who headed the office during much of the Biden years—had “inappropriately politicized and tainted” the case, rushing to charge Adams and then grandstanding in service of his own career ambitions. Again, no charges stuck. The Southern District was now in the business of seizing the man and then finding the crime: sovereign one day, Stalin the next. Jay Clayton, 20 years a Sullivan Cromwell veteran and SEC chair during Trump’s first term, got the first crack. There’s no doubt Clayton steadied the ship, refocusing the district on violent crime and genuine fraud; he departed for the nation’s top intelligence post with his reputation enhanced. But Clayton would probably be the first to say the work is unfinished. McDonald, his successor, takes over an office still laced with Biden-era holdovers still running the old gunslinger’s playbook. Before we peek under that playbook’s cover, a word about the man himself: McDonald’s credentials are gold-plated. Another SulCrom alum, he’s a former assistant U.S. attorney from the very office he now leads, where he prosecuted senior members of the Genovese crime family, New York Assembly Speaker Sheldon Silver, and a 48-defendant Bronx gang racketeering case. He ran enforcement at the Commodity Futures Trading Commission during President Trump’s first term, where the agency brought a record number of actions in his final year. And he’s also earned the president’s trust directly, having helped represent Trump in the appeal of the Manhattan hush-money conviction. But what needs straightening? Enter United States v. Daniel Chu, the paradigm exhibit that the Biden upstarts are lingering about, still shooting first and asking questions later. Chu, the son of Chinese immigrants, founded the company Tricolor in 2007 and built it into one of the nation’s largest providers of auto financing for customers with little or no credit history—working families, particularly of immigrant backgrounds, that traditional lenders would not touch. The company put thousands of American workers into reliable cars and gave many their first real shot at building credit. But, while Chu was building the company at breakneck speed to put more customers behind the wheel, his most trusted executives were playing fast and loose with the books—a shell game that came to light when those customers fell behind on payments. Following the company’s Chapter 7 bankruptcy on September 10, 2025, three senior finance officials admitted to the misconduct. But that’s not who the Southern District wants. They want Chu—and, in a campaign reminiscent of the techniques of the Biden era, it seems like they’ll do anything to get him. Case in point: When the Southern District indicted Chu last December, they didn’t just reach for the standard tools of white-collar enforcement—bank fraud, wire fraud, and conspiracy, each carrying up to 30 years. No, they also dusted off a statute so rarely used that it had lain dormant for more than a decade: the Continuing Financial Crimes Enterprise statute, 18 U.S.C. § 225, known as the “financial kingpin” law. Enacted in the wake of the 1980s savings-and-loan crisis and modeled on the drug-cartel kingpin statute, it carries a mandatory minimum of 10 years and a maximum of life in prison. In June, prosecutors expanded the case with a superseding eight-count indictment. Chu pleaded not guilty on June 30 and denies all wrongdoing. Trial is set for January 25, 2027. This is the same playbook activist prosecutors ran against Trump and his allies: reach for the most fearsome charge available, then let the mandatory minimum do the negotiating. The evidence? Slight, and built on cooperators. The former CFO Jerome Kollar, the former finance executive Ameryn Seibold, and the former COO David Goodgame pleaded guilty to fraud and conspiracy charges and are cooperating with the government. Never mind that Kollar and Seibold also pleaded guilty to destruction of records, a fact the defense says undermines their credibility. Consider Seibold’s own allocution. Asked to explain what he had done, he told the court he was directed “by others at the company, including the CFO” to double-pledge loans between credit warehouses and send false funding documents to lenders. When the banks caught on, it was “the CFO” who instructed him to delete messages. He admitted joining “a group of people at the company, Tricolor, including the CFO.” Chu’s lawyers describe the indictment as “hopelessly vague” (though the court rejected that argument earlier this month), call the allegations about Chu’s personal role “sparse,” and argue that the government has identified no contemporaneous documentary evidence that proves Chu knowingly participated in the fraud. The investigative methods raise their own alarms. According to defense filings, agents combed the Chu family’s devices using search terms as generic as “bleed,” sweeping up private communications between Chu and his wife. The defense has requested a hearing into the government’s review process, which relied heavily on broad search terms and commercial forensic platforms. Although the government denies using AI, Chu’s lawyers argue that the process lacked meaningful human review, citing as evidence the large quantities of personal material that were classified by prosecutors as “responsive.” Our old friends Giuliani and Adams know that treatment well. Who’s running the case? Who do you think? One of the prosecutors in charge, Assistant U.S. Attorney Micah Fergenson, came up through Democratic politics. A field organizer for Barack Obama’s 2008 Virginia campaign who then joined the presidential transition, Fergenson entered the Obama White House in January 2009 as executive assistant to Norm Eisen, then special counsel to the president for ethics and government reform, and remained in the counsel’s office into 2011. That’s his mentor, the same Norm Eisen who co-founded the progressive watchdog CREW and later chaired its board, and who co-founded the States United Democracy Center. He is a Brookings senior fellow and was a legal analyst at CNN, and he served as cocounsel to the House Judiciary Committee during Trump’s first impeachment. Last year, he represented FBI agents suing the Justice Department over the January 6 investigation, and he remains one of the administration’s most visible legal antagonists. Fergenson, for his part, publicly “liked” a LinkedIn post recruiting volunteers to elect Kamala Harris during the 2024 election, the Washington Examiner has reported. Clearly, then, Clayton didn’t oust everybody. That doesn’t necessarily mean that Chu’s prosecution is political. But it shows that some holdover percentage of the Southern District came up in a decidedly political school, one that’s long seen the federal prosecutor as a cudgel for ideological compliance. When a Democratic operator brings the heaviest charge in the financial code—dormant for a decade—against a private businessman on a cooperator-built record, that should trouble Jamie McDonald. If this administration cannot rein in prosecutorial excesses after half a term is in the books, how much stronger might that cancer grow back under new management in 2028?. And make no mistake: The stakes here reach far beyond Chu. Under the government’s theory, a CEO whose CFO cooks the books can face life in prison on little more than cooperator testimony—which means no executive in America is safe from a rogue subordinate. As Barnes & Thornburg warned clients after the indictment, the statute’s leadership element “can be broadly construed”: Executives who approved fraudulent conduct may qualify as having “organized, managed, or supervised” a criminal enterprise even without direct involvement in the underlying transactions. So broad a mandate could be a machine gun to stick up any given business for any reason—and somebody in the Southern District seems to know it. Indeed, the Southern District brought a second kingpin case in January, against the First Brands founder Patrick James. Context matters, too. Tricolor collapsed amid an industry-wide meltdown in subprime auto lending, with severe delinquencies climbing past Great Recession levels under the weight of Biden-era inflation and interest rates. Two of the segment’s largest operators went bankrupt in 2023; the sector’s lone publicly traded company has lost roughly 99 percent of its market value; and of the five biggest buy-here-pay-here lenders, only one survived. When an entire sector drowns, treating one founder as a cartel kingpin mistakes a policy failure for a criminal enterprise. You’d be forgiven for thinking that someone or other is trying to clean up a partisan narrative. Subscribe Today Get daily emails in your inbox There is also the awkward question of whom this prosecution serves. JPMorgan booked a $170 million charge-off on its Tricolor exposure, and Jamie Dimon conceded the episode was “not our finest moment.” Tricolor’s bondholders sued JPMorgan, Barclays, and Fifth Third, alleging the banks ignored obvious red flags because underwriting fees kept rolling in; Judge Jed Rakoff dismissed the suit in June, saying that “the [banks] were themselves victims defrauded by Tricolor.” So the banks’ due-diligence failures go unexamined while the borrower’s CEO faces life in prison. And Fergenson’s been the bag man before: He helped prosecute Charlie Javice—telling the court that JPMorgan had “acquired a crime scene”—after the bank’s $175 million acquisition of her startup proved to be built on fabricated data. When JPMorgan’s bets go sour, the Southern District reliably produces a villain. None of this is to prejudge the facts, and the government may yet prove its case. But the scale and vigor of this prosecution, not to mention the priors of its architects, raises questions about how we’re doing business in Manhattan these days—and whether the new boss is the same as the old boss. Robert Jackson, Franklin Roosevelt’s attorney general, told the nation’s federal prosecutors in 1940 that they had “more control over life, liberty, and reputation than any other person in America.” With the financial kingpin statute, that control is at its apex, which is precisely why its revival demands leadership willing to ask hard questions inside its own building. Few people are better equipped to ask those questions than McDonald. He has prosecuted actual criminal enterprises—the Genovese family is the genuine article—and he has defended a president who was himself the target of prosecutorial excess. He knows the difference between a cartel and a collapse. But removing the taint of weaponization was never going to be accomplished by a swearing-in ceremony. It requires reviewing the cases the office inherited, statute by statute, prosecutor by prosecutor, starting with United States v. Chu. The trial is set for January. What McDonald does between now and then will tell us whether the era of lawfare in Manhattan is actually over, or merely under new management.