Key Points:
- Investors sued JPMorgan Chase, Barclays, and Fifth Third over Tricolor auto loans.
- The lawsuit claims the banks ignored massive “red flags” regarding fraudulent practices.
- Plaintiffs hold more than 230 million dollars in nearly worthless Tricolor notes.
- Tricolor executives were federally indicted in December for double-pledging collateral.
A group of angry investors launched a massive lawsuit against three major Wall Street banks on Thursday. The noteholders accuse JPMorgan Chase, Barclays, and Fifth Third Bancorp of turning a blind eye to a massive fraud scheme that eventually destroyed Tricolor, a subprime auto lender.
The plaintiffs, which include major funds like Janus Henderson and One William Street Capital Management, filed the complaint in a Manhattan federal court. They collectively hold more than 230 million dollars in Tricolor asset-backed notes. These notes were sold between April 2022 and June 2025.
The lawsuit claims the banks “fueled and perpetuated Tricolor’s Ponzi-like fraud” by continuing to finance and securitize the shady auto loans.
According to the legal filing, the banks assured buyers that the notes were solid investments. However, the plaintiffs argue that the banks had clear warnings. Audits conducted in 2022 and 2024 allegedly revealed that Tricolor inaccurately reported loan data and “made up” cash flow numbers. The investors claim the banks stuck their heads in the sand to protect the millions of dollars in fees they earned from the deals.
The financial damage is severe. The lawsuit states that some of these notes now trade for less than ten cents on the dollar, potentially costing the investors hundreds of millions. All three banks declined to comment on the pending litigation.
Tricolor specialized in selling used cars and providing loans to lower-income Hispanic communities across the Southwest. The company collapsed rapidly, filing for Chapter 7 bankruptcy liquidation last September.
The fallout turned criminal in December. Federal prosecutors indicted Tricolor founder and former CEO Daniel Chu, along with former COO David Goodgame. The government accuses them of a years-long scheme to defraud lenders by manipulating data and pledging the exact same car loans as collateral to multiple different banks at the same time. Both men pleaded not guilty.
The banks themselves also lost heavily in the collapse, reporting nine-figure losses. During an earnings call last October, JPMorgan CEO Jamie Dimon famously referred to his bank’s involvement with the bankrupt lender by stating, “It is not our finest moment.”
