Several holders of Tricolor Holdings notes filed suit on Thursday in New York against JPMorgan Chase & Co., Barclays Plc and Fifth Third Bancorp., alleging the banks played a role in allowing fraud at the now-bankrupt used-car dealer and lender. The complaint was lodged by a group of investment firms that includes One William Street Capital Management and Janus Henderson Group Plc.
The plaintiffs say they own in aggregate more than $230 million of Tricolor notes and contend the lending banks ignored clear indicators of wrongdoing. According to the suit, those indicators include internal and external audits performed in 2022 and again in 2024, which the noteholders describe as alarming. The complaint accuses the banks of turning a blind eye to those findings while earning substantial underwriting fees tied to Tricolor’s securitized notes.
Tricolor filed for bankruptcy in September. In December, prosecutors charged the company’s founder and former chief executive officer, Daniel Chu, along with others, with allegedly defrauding Tricolor’s banks and investors. The indictment alleges that loan collateral was either double-pledged or had its value inflated, and that much of the collateral was effectively "near-worthless." Chu has pleaded not guilty to those criminal charges.
The civil suit from noteholders is focused on the banks’ role in the lead-up to the bankruptcy, arguing that the lenders had access to information and audit results that should have prompted action. The plaintiffs assert the banks instead continued to underwrite and market securitized notes, collecting millions in fees.
The litigation names JPMorgan, Barclays and Fifth Third as defendants and seeks to hold them accountable for losses sustained by the noteholders. The complaint highlights specific audit periods and the timing of fee income as central to its allegations that the banks prioritized revenue over rigorous scrutiny.
Summary
Noteholders representing more than $230 million in Tricolor debt have sued three banks in New York, alleging the institutions ignored troubling audit findings from 2022 and 2024 and continued underwriting securitized notes while collecting significant fees. Tricolor declared bankruptcy in September; its founder and former CEO has been criminally charged and pleaded not guilty.
Key points
- Investors holding over $230 million in Tricolor notes initiated a lawsuit against JPMorgan, Barclays and Fifth Third, alleging the banks overlooked evidence of fraud.
- The complaint references audit findings from 2022 and 2024 described as alarming and ties the banks' alleged inaction to substantial underwriting fees from securitized notes.
- The matter follows Tricolor’s September bankruptcy and criminal charges filed in December against founder and former CEO Daniel Chu, who has pleaded not guilty.
Risks and uncertainties
- Outcome of the civil litigation is uncertain; it could affect the banks' legal exposure and reputations in the lending and securitization sectors.
- Criminal proceedings against the former CEO remain pending and Chu’s not-guilty plea keeps the factual and legal picture unresolved.
- The extent to which audit findings influenced parties' actions is a central factual dispute in the case and may be contested in court.