In a complaint filed on Thursday night in Manhattan federal court, holders of more than $230 million of Tricolor asset-backed notes sold between April 2022 and June 2025 said the banks “fueled and perpetuated Tricolor’s Ponzi-like fraud” by financing and securitizing its auto loans, on top of their roles as major Tricolor lenders, News.az reports, citing Xinhua.
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The plaintiffs said the banks assured the notes were investment-worthy despite being warned that audits of Tricolor in 2022 and 2024 revealed inaccurately reported loan receivables, and cash flow that was routinely sent to the wrong accounts or “made up.”
Some notes now trade at less than 10 cents on the dollar, and the plaintiffs said their losses could reach hundreds of millions of dollars.
“Rather than risk a massive loss on their warehouse lines and forfeit the millions of dollars of fees and income derived from Tricolor’s fraudulent enterprise, defendants responded by hiding what they had learned and sticking their heads in the sand,” the complaint said.
JPMorgan, Barclays and Cincinnati-based Fifth Third declined to comment. Among the 30 plaintiffs are funds run by Janus Henderson, Ellington Capital Management and One William Street Capital Management.
JPMORGAN CEO CALLED TRICOLOR ’NOT OUR FINEST MOMENT”
Tricolor provided auto loans primarily in lower-income Hispanic communities in the southwestern United States, before filing to liquidate under Chapter 7 of the U.S. Bankruptcy Code last September 10.
The filing came 18 days before another large company in the auto sector, parts supplier First Brands, sought Chapter 11 protection from creditors.
Both bankruptcies highlighted the risk of private credit, where funds and other investors provide capital to businesses that are subject to less regulatory oversight than those tapping public markets.
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.
Chu and Goodgame pleaded not guilty. JPMorgan, Barclays and Fifth Third have reported nine-figure losses from Tricolor, and JPMorgan Chief Executive Jamie Dimon labeled his bank’s exposure “not our finest moment.”
