In the latest twist in the long-running Vesttoo saga, where fraudulent collateral was found to be sitting behind reinsurance deals via letters of credit (LOC) that turned out to be forged, the creditors to the failed insurtech’s bankruptcy trust are now suing broker Aon and China Construction Bank, alleging fraudulent conduct and blaming them for the collapse of Vesttoo.The creditors, of which Aon used to be perhaps the largest but had just in recent days withdrawn its claims on the bankruptcy estate after this complaint was filed against it, allege that “Aon aggressively and fraudulently marketed and scaled its CPI (Collateral Protection Insurance) product, inducing Vesttoo into risky transactions based on false representations.” Also claiming that, “Vesttoo’s bankruptcy was a direct result of Aon’s misconduct, lack of diligence on Vesttoo-obtained LOCs, and blatant disregard for signs of fraud.” While also stating that, “China Construction Bank enabled employee’s conspiracy to produce $2.8 billion in forged collateral.” Clearly this is a further attempt to recover some of the significant losses that have been suffered by parties involved in transaction arrangements where Vesttoo had purported to arrange collateral, but where ultimately significant value was destroyed as the fraud occurred.Aon has, of course, itself been meaningfully damaged by Vesttoo’s fraud and has its own court case against China Construction Bank and was a party to the bankruptcy case as well, as it sought to recover value for itself and its clients.But now the bankruptcy trust has turned on Aon as well, accusing it of “fraudulent conduct and other wrongdoing that inflicted devastating losses upon the insurance industry and led to Vesttoo’s bankruptcy,” according to an announcement from the creditors.

Of course, without the fraudulent actions of the Vesttoo insiders that appear to have organised the fraudulent letters of credit (LOC), the collateralized reinsurance deals backing transactions arranged by Aon and a number of other brokers would not have suffered the total loss of value that occurred.Vesttoo would not have gone bankrupt without the actions of those actors the bankruptcy court itself accused of the fraud, namely some of its co-founders, certain insiders, and actors inside China Construction Bank.But, now Aon finds itself also accused of abetting the fraud.

“Vesttoo’s collapse was the direct result of Aon and CCB’s fraudulent conduct,” explained Lawrence Hirsh, Liquidating Trustee.“Aon knew there were serious flaws in its CPI product, yet continued to falsely market it as the gold standard in intellectual property valuation.Aon also steered its riskiest transactions to Vesttoo while ignoring glaring red flags regarding Vesttoo’s collateral providers, reaping tens of millions in fees while enabling a scheme that destabilized the global insurance market.

Absent Aon’s false representations about its CPI product, Aon’s failure to satisfy its due diligence obligations to Vesttoo and its counterparties, and CCB’s facilitation of billions in forged letters of credit, Vesttoo’s business would not have relied on the misvalued deals and forged collateral that led to its demise.” “As an independent fiduciary appointed by the Court, the Trust is seeking to hold Aon, CCB, and CCB-enabled co-conspirators accountable for the manipulation of and fraud against Vesttoo,” added Hirsh.“This litigation represents an initial step toward justice for insurers and reinsurers who were victimized by Aon’s and CCB’s actions.” It is worth noting that similar CPI products, some collateralized some not, have been offered in the industry and a number of these have also seen companies withdraw them, or exit from providing capacity to support intellectual property deals.It is also worth noting, that when Hirsh describes “red flags” regarding Vesttoo and its collateral providers, those same red flags were likely visible to many entities that traded with Vesttoo and counterparties that arranged transactions for it.

The bankruptcy creditors’ lawsuit states that Aon knowingly sold its Collateral Protection Insurance (CPI) product “based on blatantly false representations,” saying it was marketed as a breakthrough structure but in reality was “flawed at its core and built on fraudulent representations of Aon’s capabilities and undisclosed conflicts of interest.” “Despite internal awareness that its CPI product was inherently risky and incapable of delivering on Aon’s promises, Aon aggressively scaled the offering, inducing Vesttoo and others into assuming billions of dollars of insurance and reinsurance risk,” the complaint alleges.It also alleges Aon “disregarded glaring warning signs regarding a scheme orchestrated by a small group of co-conspirators (including Vesttoo employee Udi Ginati and CCB employee Lam Chun-Yin (“Lam”)) to produce forged letters of credit (“LOC”) and convince Vesttoo that the LOCs were real.Meanwhile, Aon continued to persuade counterparties to participate in Vesttoo-backed transactions, despite not conducting the required due diligence on Vesttoo or its LOC collateral.” It claims Aon was “aware of serious red flags regarding the LOCs provided to Vesttoo,” but actively promoted the company.

In fairness here it is important to note that many actors in the insurance and reinsurance industry were openly unconvinced by the Vesttoo product and business offering.But the company (Vesttoo) did become seen as a source of abundant and affordable (perhaps cheap) capacity, which appeared to help fuel the fire of the fraud.The lawsuit alleges that Aon’s transactions were the primary cause of Vesttoo’s downfall and “the industry-wide chaos that it created,” saying the CPI transactions were the first time Vesttoo-obtained LOC’s were drawn on.

The creditors state, “As the early-stage companies that were involved in the CPI transactions began to default en masse, it was revealed that the IP collateral for Aon’s CPI policies were given wildly overinflated valuations by Aon that proved to cover just a small fraction – if any – of the debt the IP was meant to secure.As a result, the insurers and reinsurers in the CPI transactions began drawing on the forged LOCs – expecting bank-issued collateral – only to learn that the LOCs were forged, resulting in hundreds of millions in insurance losses.” It’s worth remembering that fraudulent collateral was provided to a range of transaction types by Vesttoo, with the majority of it (in the billions of dollars) turning out to be fraudulent.They add that, “Aon has recognized that its CPI business was irrevocably flawed.

In recent years, Aon has quietly reoriented its business away from CPI transactions.” As we said, many providers of similar intellectual property related insurance products have withdrawn from the segment in recent years and it was not only Aon transactions that were impaired due to declining valuations.On China Construction Bank, the lawsuit by the creditors “seeks damages from CCB and the co-conspirators in the LOC forgery scheme, including CCB employee Lam, for allegedly fabricating over $2.8 billion in letters of credit that proved to be entirely illusory.Given Lam was licensed to conduct financial transactions for CCB’s New York Branch, the perpetrators exploited his authority and used his CCB email address to send the LOCs and to convince Vesttoo and its counterparties that they were bona fide.” As we said, Aon and others that were party to transactions involving Vesttoo also have their own legal cases underway against China Construction Bank, while there is also .

The bankruptcy creditors have also launched a raft of adversary cases against service providers to Vesttoo, seeking to recover some of the monies paid for their involvement in Vesttoo transactions, including against many other very well-known names in the insurance and reinsurance industry.Some of the co-conspirators alleged to have been involved in the fraud are named throughout the creditors lawsuit, although the co-founders that were also alleged to have been involved are not.This appears an attempt to recover value from those that facilitated Vesttoo transactions.

But still and as we’ve seen in other legal action surrounding Vesttoo, the subject of criminal charges against those that masterminded the fraud are not the main focus it seems...All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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