(Bloomberg) — Holders of notes issued by Tricolor Holdings sued JPMorgan Chase & Co., Barclays Plc and Fifth Third Bancorp., accusing the banks of helping to perpetuate a fraud at the now-bankrupt used-car dealer and lender.
The banks were named in a lawsuit filed Thursday in New York by several investment firms including One William Street Capital Management and Janus Henderson Group Plc. The plaintiffs said they collectively hold more than $230 million in Tricolor notes.
Most Read from Bloomberg
Tricolor filed for bankruptcy in September. Company founder and former Chief Executive Officer Daniel Chu and others were charged in December with allegedly defrauding Tricolor’s banks and investors by double-pledging or inflating the value of “near-worthless” loan collateral. Chu has pleaded not guilty.
In their suit, the noteholders claim the banks ignored “clear evidence” of fraud, including “alarming” 2022 and 2024 audits of the company, because they were earning millions of dollars in fees underwriting Tricolor’s securitized notes.
Spokespeople for JPMorgan, Barclays and Fifth Third declined to comment on the suit.
In the wake of Tricolor’s collapse, the three banks disclosed they collectively faced hundreds of millions of dollars in potential losses. “It is not our finest moment,” JPMorgan CEO Jamie Dimon said during an October call with reporters.
According to the noteholders, red flags in the audit reports included “that nearly half the payments received on a given day were posted to the wrong bank account for the wrong lender, that defaulted loan accounts showed recoveries that were never actually obtained from car repossessions that never actually occurred, and that loan delinquencies were inaccurately reported and aged.”
The banks “responded by hiding what they had learned and sticking their heads in the sand to avoid learning more,” the noteholders claim. JPMorgan, Barclays and Fifth Third also allegedly concealed or misrepresented concerning information in offering materials for investors.
“In doing so, defendants fueled and perpetuated Tricolor’s Ponzi-like fraud,” the plaintiffs claim.
The suit is One William Street Capital Master Fund Ltd. et al v. JPMorgan Chase Bank, National Association et al, 26-cv-01622, US District Court, Southern District of New York (Manhattan).