Tricolor creditors seek probe into alleged collateral fraud, lender conduct (updated)

Fifth Third Bancorp

04/12/2025 04:40

Adds Fifth Third declined to comment in paragraph 7

Dec 3 (Reuters) - Creditors of Tricolor Holdings have asked a U.S. bankruptcy judge to let them investigate what JPMorgan Chase JPM.N and Fifth Third Bancorp FITB.O knew about alleged fraud that led to the September collapse of the subprime auto lender and car dealership.

In a Tuesday court filing, the Ad Hoc Activist Recovery Group, whose members hold more than $225 million of secured notes, said Tricolor's sudden shutdown and Chapter 7 liquidation proceeding left its lending, servicing and dealership operations in “complete disarray,” unable to track customer payments or access reserves to pay noteholders.

The creditors said they want to issue subpoenas to help find out what JPMorgan and Fifth Third, which helped arrange Tricolor securitizations, knew about "red flags" at the company, and what they did when problems became apparent.

The creditors said they also want to know if they were fraudulently induced into providing capital, and whether a default on the notes was necessary.

"The Chapter 7 Trustee’s counsel has stated that, prior to the bankruptcy, Tricolor was entangled in a 'pervasive' fraud that involved the double-pledging of collateral," the creditor group said.

"Acquiring as much information as possible surrounding any fraud or collateral impairments ... is critical to stemming the tide, preserving value, and ensuring that any bad actors do not inequitably profit," they added.

JPMorgan and Fifth Third declined to comment. A lawyer for Tricolor did not immediately respond to requests for comment after business hours.

Credit markets were unsettled by the September bankruptcies of both Tricolor and First Brands, an auto parts maker that has also faced accusations of double-pledging of collateral.

JPMorgan Chase, the largest U.S. bank, wrote off $170 million in the third quarter related to Tricolor. The bank's chief executive, Jamie Dimon, described the exposure as "not our finest moment."

 (Reporting by Devika Nair in Bengaluru and Jonathan Stemple in New York ; Editing by Leslie Adler)

 ((Devika.MadhusudhananNair@thomsonreuters.com))