Money Center Banks that Pushed the Tricolor Securities Fraud Are Being Sued by the Investors That Were Defrauded

Money Center Banks that Pushed the Tricolor Securities Fraud Are Being Sued by the Investors That Were Defrauded

Investors who bought now-worthless securities supported by the auto loans of Tricolor Holdings are suing the investment banks that issued them. JPMorgan, Barclay’s, and Fifth Third Bank promoted these securities as being “investment grade” even though their source of repayment was auto loans issued to non-citizens with no credit. Now those money center banks are being sued for their complicity in a spectacular fraud.

First, here’s a background summary on the Tricolor story, which I have written about several times, most recently this piece from last October, “Tricolor Auto Failure Follow-up: JPMorgan Takes a $170 Million Hit; Trump Disbands the Government’s DEI Agency that Was Involved”

• Tricolor was a company that sold and financed used cars, and its primary market was Spanish-speaking non-citizens illegally residing in the U.S.

• President Trump’s crackdown on illegal aliens not only caused a cessation of sales, but it pretty much brought an end to repayment on Tricolor’s loans, too.

• Money center banks had securitized about $2 billion of Tricolor’s very high risk loans. These securities were much like the bundled, sub-prime mortgages from the 2008 financial crisis.

• Tricolor was engaged in a massive fraud, with the same collateral pledged to multiple loans and securities.

• JPMorgan and Fifth Third Bank also had outstanding lines of credit to Tricolor. They each took a massive loss of about $200 million from the default on their lines of credit.

• The federal government under President Biden had given its seal of approval to Tricolor and its securities, certifying them as “social bonds” under the US Treasury’s CDFI program (“Community Development Financial Institution Fund”), because Tricolor’s customer base was an “underserved community.”

While all parties involved deserve ridicule for thinking that a pool of lower-than-subprime loans could make a high-quality security, the lawsuit doesn’t just allege that the big banks were pushing a junk product, the allegation is that there was willful blindness to the fraud that was occurring. Further, with the fraud in plain sight, the banks continued to earn underwriting fees for promoting these fraudulent securities.

“Tricolor Noteholders Sue JPMorgan, Barclays and Fifth Third” [Bloomberg - 02/27/2026].  

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.   The CPA audits of Tricolor indicated waving red flags, including:

• Nearly half of payments received on a given day were posted to the wrong account.

• Defaulted loan accounts showed financial recoveries from repossessions, even though the subject cars were not actually repossessed.

• Loan delinquencies were inaccurately reported and re-aged so as to show those loans not being in default.

The plaintiffs accordingly allege that:

• JPMorgan, Barclay’s, and Fifth Third “responded by hiding what they had learned and sticking their heads in the sand to avoid learning more.”

• JPMorgan, Barclay’s, and Fifth Third withheld or misrepresented adverse information in offering materials for investors. Per the plaintiffs’ suit, “Defendants fueled and perpetuated Tricolor’s Ponzi-like fraud.”

When the Tricolor fraud blew wide open, JPMorgan’s CEO, Jamie Dimon, was quoted as saying ”It is not our finest moment. When something like that happens, you can assume that we scour every issue, every universe, everything about how it could be taking place to make sure it doesn’t take place from here. You can never completely avoid these things, but the discipline is to look at it in cold light and go through every single little thing, which you can imagine we’ve already done.”

Dimon added, ”When you see one cockroach, there are probably more.” To repeat what I said back in October, If there are more “cockroach loans” like Tricolor that are about to blow up, it is not an economic indicator, rather it is a sign that banks and investment houses abandoned their underwriting standards in pursuit of woke cred.

I’d also argue that it’s not fair for Dimon to blame employees whose “discipline” was lax. While this is only my opinion, I will state with a high level of confidence that plenty of lower-level analysts and underwriters at JPMorgan knew just how uncreditworthy Tricolor was, but senior management pressure for Community Reinvestment Act credits, woke bragging rights, government favor, etc., compelled every layer of credit approver to recommend approval for a lending facility that objectively should have been rejected.

Mr. Dimon stated that he was going to look at the Tricolor debacle “in cold light and go through every single little thing.” I hope he did. And if he has not yet uncovered why the underwriting and approval chain felt they could not decline the Tricolor facilities, then the light is clearly not cold enough.

As the lawsuit by defrauded investors moves forward, the question I’m most interested in isn’t “Who knew how bad Tricolor was, and when?” Instead, the question I have is why did otherwise intelligent bankers think they had no choice but to consent to promoting Tricolor as a good credit risk when the fraud and lack of creditworthiness were so evident.