Three major banking institutions are facing legal action from investors who claim the financial giants overlooked clear warning signals about fraudulent activity at a collapsed auto lending company.
Investors filed a lawsuit Thursday evening in Manhattan federal court against JPMorgan Chase, Barclays, and Fifth Third Bank, alleging the institutions failed to heed obvious danger signs while promoting investments tied to Tricolor, a subprime auto lender that has since declared bankruptcy.
The legal action involves investors holding more than $230 million in Tricolor asset-backed securities that were marketed between April 2022 and June 2025. According to the lawsuit, the banks “fueled and perpetuated Tricolor’s Ponzi-like fraud” through their financing and securitization of the company’s auto loans, while also serving as significant lenders to the business.
Court documents reveal that the banking institutions promoted these securities as sound investments despite receiving warnings from audits conducted in 2022 and 2024. These examinations uncovered falsely reported loan receivables and cash flow irregularities, including funds being directed to incorrect accounts or completely fabricated.
The investment notes now trade for less than 10 cents per dollar of their original value, with investor losses potentially reaching 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.
All three banks – JPMorgan, Barclays, and Cincinnati-based Fifth Third – have refused to provide comments regarding the litigation. The 30 plaintiffs include investment funds managed by Janus Henderson, Ellington Capital Management, and One William Street Capital Management.
Tricolor specialized in providing automotive financing primarily to lower-income Hispanic communities throughout the southwestern United States before filing for Chapter 7 liquidation bankruptcy on September 10 of last year.
This bankruptcy filing occurred just 18 days prior to another significant automotive industry collapse, when parts supplier First Brands also sought Chapter 11 bankruptcy protection.
Both corporate failures have drawn attention to the risks associated with private credit markets, where investment funds and other financial entities provide capital to companies that face less regulatory scrutiny compared to businesses accessing public markets.
In December, federal prosecutors in Manhattan indicted Tricolor Chief Executive Daniel Chu and former Chief Operating Officer David Goodgame on charges of systematically defrauding creditors and lenders through falsified loan data and double-pledging of collateral.
Both Chu and Goodgame have entered not guilty pleas to the charges. The three banks involved have each reported nine-figure financial losses related to their Tricolor exposure, with JPMorgan Chief Executive Jamie Dimon characterizing his institution’s involvement as “not our finest moment.”
