JPMorgan, Barclays, Fifth Third Defeat Lawsuit Over Tricolor 'Red Flags' and Fraud Claims
By Jonathan Stempel
Judge Dismisses Investor Lawsuit Against Major Banks Over Tricolor Fraud Allegations
NEW YORK, June 10 (Reuters) - JPMorgan Chase, Barclays and Fifth Third won the dismissal of a lawsuit by investors who said the banks missed "giant red flags" at the now-bankrupt subprime auto lender Tricolor while fraudulently marketing its debt.
U.S. District Judge Jed Rakoff in Manhattan threw out the case on Wednesday, and said he will explain his reasoning in due course.
Background of the Lawsuit
Holders of more than $270 million in Tricolor asset-backed notes sold between April 2022 and June 2025 accused the banks of "sticking their heads in the sand" while financing and securitizing Tricolor's auto loans, on top of being major Tricolor lenders, and enabling the company's "Ponzi-like fraud."
The 36 plaintiffs included funds run by Janus Henderson, Ellington Capital Management and One William Street Capital Management.
Bank Responses and Comments
Barclays and Cincinnati-based Fifth Third declined to comment. JPMorgan had no immediate comment.
Tricolor's Business and Bankruptcy
Tricolor provided auto loans primarily in lower-income Hispanic communities in the southwestern U.S., before filing to liquidate in September.
The filing came 18 days before a large auto parts supplier, First Brands, sought Chapter 11 protection from creditors.
Risks Highlighted by Bankruptcies
Both bankruptcies highlighted the risk of private credit, where investors provide capital to businesses that receive less regulatory oversight than businesses tapping public markets.
Fraud Claims and Audit Findings
Investors accused JPMorgan, Barclays and Fifth Third of falsely assuring that Tricolor notes were worth buying, even as audits in 2022 and 2024 revealed that Tricolor inaccurately reported loan receivables and either misdirected or "made up" cash flow.
Some notes ended up trading below 10 cents on the dollar, the investors said.
Banks’ Defense and Legal Arguments
In seeking a dismissal, the banks said the investors "at most" alleged negligence rather than intent to defraud. They also said claims they "failed to stop" fraud sooner have never justified securities fraud claims in New York federal courts.
All three banks have reported nine-figure losses from Tricolor.
Criminal Charges Against Tricolor Executives
In December, Tricolor Chief Executive Daniel Chu and former Tricolor Chief Operating Officer David Goodgame were indicted in Manhattan for allegedly systematically defrauding creditors and lenders, including by falsifying loan data and double-pledging collateral. Both pleaded not guilty.
Reporting and Editing
(Reporting by Jonathan Stempel in New York; Editing by Mark Porter)
