Auto dealer Tricolor filed for Chapter 7 bankruptcy in Texas court on Wednesday, moving to liquidate its business a day after Fifth Third Bank warned of alleged fraudulent activity at the company.
Tricolor, the third-largest used auto retailer in Texas and California, has more than $1 billion in assets and over $1 billion in liabilities, with more than 25,000 creditors, according to its bankruptcy petition.
Fifth Third said late on Tuesday it had discovered alleged external fraudulent activity related to a $200 million asset-backed loan held by Irving, Texas-based Tricolor.
Fifth Third said it was working with law enforcement and that it expected to take a $170 million to $200 million impairment charge for the loan.
Other banks could also face losses in the car dealer’s bankruptcy.
JPMorgan has nearly $200 million of exposure to Tricolor, according to a source.
JPMorgan and Fifth Third declined to comment on Wednesday.
An attorney who helped Tricolor file for bankruptcy declined to comment on the fraud allegations, and said he would no longer be working for the company after its filing.
The US Justice Department is investigating the alleged irregularities at Tricolor, the Financial Times reported on Wednesday, citing two people briefed on the matter.
The Justice Department did not respond immediately to a request for comment.
Tricolor, with operations in six states, sold cars and provided auto loans mostly to low-income Hispanic communities in the Southwestern United States, saying it saw an opportunity to serve “invisible” workers with no access to bank accounts or other forms of credit.
Tricolor said in June it had disbursed more than $5 billion in affordable auto loans to Hispanic car buyers who had been “left behind by mainstream financial providers.”
