Key facts
- JPMorgan Chase, Barclays, and Fifth Third have won the dismissal of a lawsuit.
- Investors accused the banks of missing "red flags" at the bankrupt auto lender Tricolor.
- The lawsuit alleged the banks fraudulently marketed Tricolor's debt.
- U.S. District Judge Jed Rakoff dismissed the case.
- Tricolor provided auto loans primarily in lower-income Hispanic communities before liquidating.
JPMorgan Chase, Barclays, and Fifth Third have secured the dismissal of a lawsuit filed by investors who alleged the banks overlooked significant warning signs at Tricolor, a subprime auto lender that has since gone bankrupt. U.S. District Judge Jed Rakoff in Manhattan ruled on Wednesday that the case should be thrown out, with his reasoning to be provided later.
The plaintiffs, who held over $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. They also claimed the banks were major lenders to Tricolor, thereby enabling what they described as a "Ponzi-like fraud."
Among the 36 plaintiffs were funds managed by Janus Henderson, Ellington Capital Management, and One William Street Capital Management. Representatives for Barclays and Fifth Third declined to comment, while JPMorgan had no immediate statement.
Tricolor, which primarily offered auto loans to lower-income Hispanic communities in the southwestern U.S., filed for liquidation in September. This filing occurred shortly before a major auto parts supplier, First Brands, sought Chapter 11 protection. Both bankruptcies have underscored the risks associated with private credit, which operates with less regulatory scrutiny than public markets.
Investors contended that JPMorgan, Barclays, and Fifth Third falsely assured the market that Tricolor notes were a sound investment. They pointed to audits in 2022 and 2024 that allegedly revealed Tricolor had inaccurately reported loan receivables and had misdirected or fabricated cash flow. Consequently, some of the notes reportedly traded at less than 10 cents on the dollar.
In their defense, the banks argued that the investors' claims amounted to negligence at most, not intentional fraud. They also cited New York federal court precedent that suggests claims of "failure to stop" fraud do not justify securities fraud allegations.
All three banks have incurred substantial losses, each reporting nine-figure write-downs related to Tricolor. In December, Tricolor's former CEO, Daniel Chu, and former COO, David Goodgame, were indicted on charges of defrauding creditors and lenders by falsifying loan data and double-pledging collateral. Both have pleaded not guilty.