Over the past decade, private credit has evolved from a niche asset class into one of the fastest growing segments in the global financial system, with $3.5 trillion in assets under management, potentially reaching $4.5 trillion or more by 2030. But rapid growth can also bring major risks for investors. As market participants and regulators scrutinize the industry, it will take time before we see any significant risk mitigation. In the meantime, retail investors must stay vigilant to risks, and insiders privy to private credit deals should consider reporting misconduct when they see it.
What Is Private Credit?
Following the 2008 financial crisis, regulatory changes that increased capital requirements for traditional banks created an opening for alternative asset managers and other non-bank lenders to meet the needs of borrowers, typically middle market companies, that were otherwise blocked out of the capital markets. In these private credit transactions, borrowers secure financing from pensions, endowments, insurance companies, sovereign wealth funds, or other institutional lenders. In contrast to traditional bank lending, deals are fast and confidential, and the agreements are bespoke and flexible. This is attractive to borrowers, of course. But it is also replete with risk.
Without regulatory oversight and the disclosure, transparency and capital requirements of traditional bank financings, the private credit market is a major component of the “shadow banking” system. However, recent bankruptcies and fraud allegations over the last year have brought the private markets front and center in the minds of many observers (and regulators).
Tricolor & First Brands: Sound the Private Credit Alarm?
Late in 2025, the collapse of two companies sent shockwaves across Wall Street, leading to voluminous “doom and gloom” headlines about private credit markets.
First, Tricolor was an auto dealer that provided vehicles and financing for subprime borrowers. Its executives were charged with a laundry list of allegations ranging from “double-pledging” auto loans to self-dealing, bank fraud, misrepresentations, and wire fraud.
Second, auto parts supplier First Brands filed for bankruptcy shortly after Tricolor. Its executives were indicted in a massive fraud scheme involving falsified invoices used to secure financing. First Brands’ debt structure included more than $2 billion in off balance sheet private credit.
These and other high-profile withdrawal restrictions and defaults have sparked concerns that there are systemic problems in the private credit market. On the one hand, fraud happens at banks and non-banks alike. On the other hand, because of the speed, structure, and opacity of private market deals, there’s good reason to think that the problems in private credit require a healthy dose of sunshine to expose and correct.
“Opaque” is Not Invisible: Mapping Out Misconduct
While private credit deals may fly below the U.S. Securities and Exchange Commission’s (SEC’s) radar, fraud is rarely private. There are usually bystanders, even if they’re looking the other way.
In the Tricolor Holdings matter, senior leadership allegedly directed an employee to doctor spreadsheets to make delinquent car loans appear current. A junior analyst at Waterfall Asset Management, one of Tricolor’s lenders, spotted the inconsistencies. If those people knew, how many others also knew?
Where Is the SEC in All of This?
Any market that touches, and risks hurting, the ordinary Main Street investor will get the SEC’s attention. In October 2025 remarks, Chairman Paul Atkins said that “the private markets are really essential and great, and they’ve grown tremendously. . . . Thank goodness for private credit right now because had we not had private credit, our economy would not be where it is.” In its fiscal year 2026 examination priorities, released shortly thereafter, the Commission made clear that it will focus on alternative products, specifically private credit. Punctuating that priority, Atkins opened a March 2026 Private Markets Roundtable by remarking that “private markets have earned their place as a pillar of capital formation. Widening access to them without weakening protection is an ongoing act of calibration that we are committed to getting right.”
The question is, is there sufficient protection to begin with? Some titans of Wall Street are raising strikingly worded alarms about the state of the industry. Even as JPMorgan has significantly grown its presence in the private credit market, committing $50 billion to direct lending in 2025, CEO Jamie Dimon is concerned that the current market dynamics—rising defaults and bankruptcies—feel similar to 2008. During the bank’s Q3 earnings call, Dimon noted: “when you see one cockroach, there are probably more.” Similarly, on a Bloomberg podcast on March 1, Goldman’s former CEO, Lloyd Blankfein, echoed Dimon’s sentiment. “Everyone says, ‘Oh, the world’s not leveraged.’ That’s exactly what everybody said in the mortgage crisis until you suddenly discover that there was a lot of mortgage risk in Iceland,” Blankfein said. “It sort of smells like that kind of a moment again. I don’t feel the storm, but the horses are starting to whinny in the corral.”
In the Interim, Stay Vigilant
The private credit market has served a critical need by providing a lifeline to companies unserved by traditional banks. But the nature and hurried pace of dealmaking create too much room for error. Unless and until regulators step in to protect parties on all sides of these transactions—particularly ordinary investors—it’s incumbent on insiders to spot and report misconduct. Did a company abruptly fire its audit and accounting firm and, overnight, switch to a new one? Are there inconsistencies between what’s reported on paper and what’s visible at the company? Did the lender speed through the due diligence process to close a deal that warranted closer monitoring? Are the margins just too high?
Optimism and caution aren’t mutually exclusive. But we must be mindful that private credit often operates in the shadows. And in investor protection, that’s never a good thing.
Dave Jochnowitz is a Partner and Co-Chair of the Whistleblower & Retaliation Practice at Outten & Golden LLP.
