A federal judge in Manhattan has dismissed a suit by investors who accused JPMorgan Chase, Barclays and Fifth Third of overlooking substantial warning signals at Tricolor, a subprime auto lender that later entered bankruptcy proceedings.
U.S. District Judge Jed Rakoff threw out the complaint on Wednesday and said he will provide a written explanation for his decision in due course. The civil action had been filed by holders of more than $270 million in Tricolor asset-backed notes issued between April 2022 and June 2025.
The plaintiffs, a group of 36 noteholders that included funds run by Janus Henderson, Ellington Capital Management and One William Street Capital Management, alleged the banks had "stuck their heads in the sand" while acting as major lenders to Tricolor and facilitating the securitization of its auto loans. The investors said the banks falsely assured the market that Tricolor’s notes were suitable investments even as audits in 2022 and 2024 raised questions about Tricolor’s reported loan receivables and cash flow.
According to the complaint, those audits revealed that Tricolor had misreported loan receivables and either misdirected or fabricated cash flow figures. The investors further said that some of the notes ultimately traded for less than 10 cents on the dollar.
In their bid to dismiss the case, the three banks argued that the investors' allegations amounted at most to negligence and did not establish the intent to defraud required for securities fraud claims in New York federal courts. The banks also told the court that allegations asserting a failure to detect or halt fraud sooner have not been sufficient to support such claims in prior decisions.
All three banks have acknowledged nine-figure losses tied to Tricolor. Barclays and Cincinnati-based Fifth Third declined to comment on the court’s decision, and JPMorgan did not offer an immediate response.
Tricolor had provided auto loans mainly in lower-income Hispanic communities in the southwestern United States before filing to liquidate in September. That filing occurred 18 days before a large auto parts supplier, First Brands, sought Chapter 11 protection from creditors. The pair of bankruptcies was cited in the complaint as underscoring risks associated with private credit - a market in which investors extend capital to companies that are subject to less regulatory oversight than issuers in public markets.
In December, Tricolor’s chief executive, Daniel Chu, and former chief operating officer, David Goodgame, were indicted in Manhattan on charges alleging a systematic scheme to defraud creditors and lenders. The indictments accuse them of actions including falsifying loan data and double-pledging collateral. Both defendants have pleaded not guilty.
Legal and market implications
The dismissal ends, for now, a civil avenue pursuing claims that three major banks should have acted differently in their roles as lenders and securitization arrangers. Judge Rakoff’s forthcoming written opinion will provide further detail on the legal reasoning behind rejecting the investors’ allegations.
The underlying factual disputes described in the complaint highlight operational and reporting risks tied to private credit structures, the complaint asserted, though the court’s dismissal indicates those allegations did not meet the legal standards for securities fraud under the circumstances as pleaded.