Investors sue JPMorgan, Barclays for burying fraud in $2B securities deal

Investors accuse JPMorgan, Barclays, and Fifth Third of hiding fraud while selling nearly $2 billion in auto loan-backed securities. 

A coalition of institutional investors — among them Janus Henderson ETFs, Ellington funds, and One William Street Capital — has taken JPMorgan Chase, Barclays, and Fifth Third to court, alleging the three financial giants knowingly peddled nearly $2 billion worth of asset-backed securities built on a foundation of fraudulent subprime auto loans.  

The lawsuit, filed February 26 in the Southern District of New York, centers on seven securitizations tied to Tricolor Holdings, a now-bankrupt used car dealer and subprime auto lender that allegedly ran a sprawling, years-long fraud involving fabricated loans, double-pledged collateral, and manipulated performance data.   

The investors say the banks wore two hats in the arrangement — lending Tricolor more than a billion dollars through warehouse credit lines while simultaneously underwriting and selling the securitizations that allowed them to offload that exposure onto unsuspecting buyers.   

And the numbers are staggering. According to the filing, a forensic analysis by Tricolor's Chapter 7 Trustee found that more than 31,000 auto loans — worth roughly $548 million — had been pledged to multiple parties at the same time. Another 6,960 loans, valued at about $135 million, allegedly never existed at all.   

By the time the fraud unraveled in August 2025, Tricolor was reportedly claiming $2.2 billion in loan collateral while holding just $1.4 billion in actual loans — an $800 million gap.   

The filing paints a damning picture of what the banks allegedly knew and when. A 2022 audit flagged "internal control weaknesses" and "material weaknesses" in Tricolor's operations.  A more detailed 2024 review by auditor CBIZ MHM found that loan delinquency data was being misreported, recoveries on defaulted loans were fabricated using index-based estimates rather than actual cash, and on one test day, nearly half of all payments landed in bank accounts belonging to the wrong entity.    

Perhaps the most eye-catching allegation involves a split within JPMorgan itself. According to the filing, the bank's equity capital markets team was hired to help take Tricolor public around the same time the audit results came in. That team reportedly uncovered the same red flags — and also discovered that Tricolor's CFO, Jerry Kollar, had previously been associated with a large accounting fraud that led to a criminal indictment.  JPMorgan walked away from the IPO. But according to the investors, its securitization team kept right on selling Tricolor deals to the market. 

The investors allege the banks had every reason to look the other way. Each securitization repaid the banks' own warehouse loans, effectively shifting the risk from their balance sheets onto investors. The filing says the banks collected millions of dollars in fees and interest income each year from the arrangement.   

The fallout has been severe. Tricolor filed for Chapter 7 bankruptcy on September 10, 2025. Its CEO, Daniel Chu, was indicted by the U.S. Attorney for the Southern District of New York on December 15, 2025, on charges including double-pledging of securitized loans. The Chapter 7 Trustee separately sued Chu, Kollar, and other Tricolor executives in the Bankruptcy Court for the Northern District of Texas.  

The plaintiffs — who collectively hold more than $230 million in notes from the Tricolor Trusts — say their holdings are now nearly worthless.   

The case raises pointed questions for the wealth and investment industry: How much reliance can institutional investors place on offering memoranda prepared by underwriters who also have significant lending exposure to the same deal? And what happens when the gatekeepers have a financial interest in keeping the gate open? 

The case is in its early stages. No determination has been made on the merits, and the allegations remain unproven. JPMorgan, Barclays, and Fifth Third have not yet responded to the claims.