The Vesttoo Creditors Liquidating Trust, an independent fiduciary appointed by the U.S. Bankruptcy Court for the District of Delaware, has filed a complaint in the Court against Aon, China Construction Bank, and certain entities and individuals for alleged fraudulent conduct and other wrongdoing that “inflicted devastating losses upon the insurance industry” and led to Vesttoo’s bankruptcy.
For those unaware, the Israeli insurtech collapsed in 2023 after it was revealed that over $4 billion in letters of credit (LOCs) backing reinsurance deals were fraudulent. A range of court actions are underway, including Aon’s direct legal action against China Construction Bank.
With this in mind, Vesttoo bankruptcy creditors have now alleged that Aon knowingly sold its Collateral Protection Insurance (CPI) product to Vesttoo and other insurance and reinsurance companies based on “blatantly false” representations.
“Marketed as a breakthrough insurance mechanism that delivered accurate intellectual property (IP) valuations, in reality, Aon’s CPI product 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 Vesttoo Creditors Liquidating Trust alleged.
The Trust, established as an independent fiduciary under the U.S. Bankruptcy Court to pursue recovery claims on behalf of creditors harmed by Vesttoo’s collapse, also alleged that Aon ignored “glaring warning signs” of a scheme by a small group of co-conspirators to produce forged LOCs and convince Vesttoo they were real.
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It further stated that Aon ignored red flags surrounding Vesttoo’s LOCs fraud to continue scaling its CPI product, adding that Aon’s CPI transactions were the primary cause of Vesttoo’s downfall and the industry-wide chaos they created.
“Prior to its involvement with Aon’s CPI deals, Vesttoo’s insurance and reinsurance counterparties had never drawn on Vesttoo-obtained LOCs,” the Trust said.
Meanwhile, the new lawsuit additionally seeks damages from China Construction Bank and the co-conspirators in the LOCs forgery scheme for allegedly fabricating over $2.8 billion in LOCs that proved to be entirely illusory.
Lawrence Hirsh, Liquidating Trustee, commented, “Vesttoo’s collapse was the direct result of Aon and CCB’s fraudulent conduct. 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 destabilised 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. This litigation represents an initial step toward justice for insurers and reinsurers who were victimised by Aon’s and CCB’s actions.”
It’s worth noting that Vesttoo bankruptcy creditors have also launched several adversary cases against well-known re/insurance industry service providers that worked on Vesttoo transactions, seeking to recover some of the monies paid to them.
In response to the new lawsuit, Aon stated, “This lawsuit represents a perverse attempt by Vesttoo’s bankruptcy estate to shift responsibility for Vesttoo’s deliberate fraud to Aon, one of the fraud’s biggest victims.
“Vesttoo has already acknowledged in its own investigative report that executives of the company, along with other co-conspirators, were responsible for the fraud and intentionally sought to mislead Aon and other impacted parties.
“We will vigorously defend Aon against these meritless claims and continue to take steps to both maximise recoveries for our clients and strengthen standards across our industry.”
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