Major Banks Face Lawsuit Over Missed Red Flags in Tricolor Auto ABS Fraud Scheme

The trouble with Tricolor is not over for JPMorgan Chase, Barclays, and Fifth Third. The banks are being sued by investors who bought $230 million in securities issued by the subprime auto lender. 

Tricolor filed for bankruptcy in September and was indicted for widespread fraud in December. In January, Tricolor’s former chief executive officer and former chief operating officer pleaded not guilty to charges that they carried out fraud. 

And in a lawsuit filed on Feb. 26, the banks are accused of missing red flags when marketing the debt from Tricolor. The plaintiffs are holders of $230 million in asset-backed notes from Tricolor that were sold between April 2022 and June 2025.

According to the lawsuit, the banks “fueled and perpetuated Tricolor’s Ponzi-like fraud,” Reuters reports.

Some of those notes backed by Tricolor trade at less than 10 cents on the dollar, and the plaintiffs in the case said their losses to Tricolor could reach hundreds of millions of dollars, Reuters reports. 

Tricolor operated “a blatant double-pledging scheme,” according to the lawsuit. It worked like this: A single auto loan was pledged as collateral for several warehouse credit lines with different banks all at the same time. Tricolor continued this strategy even after an auto loan was sold into securitization, BankingDive reports.

In the lawsuit, 30 investors are accusing the banks of concealing and misrepresenting “clear evidence of Tricolors’s fraudulent conduct” in the materials that were sent to investors of asset-backed securities, according to BankingDive. 

Investors included in the lawsuit are One William Street Capital Management, Janus Henderson, and Ellington Capital Management. 

According to investors, banks were “privately warned for years” about Tricolor with audits in 2022 and 2024 flagging “numerous alarming issues,” BankingDive reports.

A forensic analysis by Tricolor’s Chapter 7 Trustee found there were more than 31,000 auto loans worth about $548 million that had been pledged to several parties at the same time, InvestmentNews reports. 

The banks accused in the lawsuit charged off losses related to Tricolor last year. JPMorgan Chase charged off $170 million in the third quarter of 2025. Fifth Third charged off $178 million in the third quarter of 2025. And Barclays posted a loss of $150 million in the third quarter of 2025, BankingDive reports. 

The banks will face further losses from Tricolor if the lawsuit against them is successful. 

According to investors, the banks were lending Tricolor more than a billion dollars through warehouse credit lines while also underwriting and selling the securitizations, InvestmentNews reports.

Here is a comment from JPMorgan Chase Chief Executive Officer Jamie Dimon reported by BankingDive. 

“When something like that happens, you could assume that we scour every issue, every universe, everything about how it could be taking place,” to make sure such a thing doesn’t happen again, Dimon said in October. 

“You can never completely avoid these things, but discipline is to look at it in cold light, and go through every single little thing, which you can imagine we’ve already done.”

The fact that it was fraud is no excuse, said Barclays Chief Executive Officer C.S. Venkatakrishnan in October, according to BankingDive. Barclays has looked at the lessons the bank can learn from this and apply them across its portfolios, he said.

“We will likely be monitoring our portfolios more carefully, particularly understanding the impact of changed economic conditions on companies and looking closely at the strength and independence of financial controls,” Venkatakrishnan said.

Thirty investors are suing JPMorgan Chase, Barclays and Fifth Third over the banks’ dealings with Tricolor, a subprime and now bankrupt auto lender that has been indicted on charges of widespread fraud.

The investors say they lost almost $230 million on asset-backed securities issued by Tricolor.