Tricolor creditors seek probe into alleged collateral fraud, lender conduct

Dec 3 (Reuters) – Creditors of Tricolor Holdings have asked a U.S. bankruptcy judge to allow them to investigate what JPMorgan Chase and Fifth Third Bancorp knew about alleged fraud that led to the subprime auto lender and car dealership’s collapse in September. The Ad Hoc Activist Recovery Group, whose members hold more than $225 million in secured notes, said in a court filing Tuesday that Tricolor’s sudden closure and Chapter 7 liquidation left its lending, servicing and dealership operations “in complete disarray,” leaving it unable to keep track of customer payments or access reserves to pay noteholders.

Creditors said they want to subpoena JPMorgan and Fifth Third, which helped arrange the Tricolor securitizations, to help find out what they knew about “red flags” at the company and what they did when problems arose.

Creditors also want to know whether they were fraudulently directed to provide capital and whether a default on the notes is warranted, he said.

“The Chapter 7 Trustee’s attorney stated that prior to bankruptcy, Tricolor was involved in ‘widespread’ fraud involving double collateral liens,” the creditor group said. he said.

“Obtaining as much information as possible about any fraud or property damage…is critical to stemming the tide, preserving value, and ensuring bad actors do not profit unfairly,” they added.

JPMorgan declined to comment. Attorneys for Fifth Third and Tricolor did not immediately respond to requests for comment after business hours. Credit markets were roiled by the September bankruptcies of both Tricolor and First Brands, an auto parts maker that faces double underwriting charges.

JPMorgan Chase, the largest bank in the USA, lost $170 million in the third quarter related to Tricolor. Jamie Dimon, the bank’s chief executive, called the revelation “not our finest moment.”

(Reporting by Devika Nair in Bengaluru; Editing by Leslie Adler)