Aon’s White Rock pursues Vesttoo in court, gets order to freeze assets
Insurance and reinsurance broking giant Aon is pursuing beleaguered insurtech Vesttoo through a New York Court via its White Rock Insurance (SAC) Ltd. segregated account and transformer structure, and has so far secured a temporary restraining order to freeze Vesttoo’s funds.
Court documents seen by Artemis show Aon’s Bermuda-based White Rock SAC calling for an injuction to freeze Vesttoo’s assets, “pending arbitrations of White Rock’s claims against Vesttoo, stemming from an apparent large-scale fraud scheme surrounding letters of credit (“LOC”) provided by Vesttoo to collateralize reinsurance transactions facilitated by White Rock on behalf of its insurer clients.”
White Rock sat in the middle of a number of arrangements which featured Vesttoo and collateral sourced for its collateralized reinsurance deals, as a risk transformer and connector of client and capital counterparties.
“Although primarily a middle man, with the goal of protecting its clients White Rock is exercising its contractual rights against Vesttoo to recover funds and obtain acceptable security for the benefit of its clients,” Aon’s White Rock states in the petition.
Adding that, “Without immediate injunctive relief from this Court, Vesttoo may empty its bank account prior to any adjudication in the forthcoming arbitrations, rendering ineffectual the anticipated relief in the arbitration.”
So effectively, the move is to secure assets in Vesttoo linked structures in caution that the insurtech could remove assets and make them inaccessible to any reparations being sought on behalf of White Rock clients.
Explaining the connection, the court petition states, “For most transactions at issue, Aon insurance and reinsurance brokers partnered with certain lender clients who wished to consider investments in start-up companies or other firms with significant intellectual property (“IP”) assets who needed funding to support their growth.
“Recognizing that the value of IP assets may be fluid, Aon’s client lenders would obtain collateral protection insurance, which was subsequently reinsured by capital arranged by Vesttoo and through a segregated account created by White Rock to facilitate reinsurance transactions agreed to between client insurers and Vesttoo.”
It also states that Vesttoo’s role in the arrangements was to, “contract with investors for investment capital as collateral—in the form of letters of credit (“LOCs”)—to secure the reinsurance obligations and provide recovery to insurers in the event of default (and subsequent claim under the collateral protection insurance).
“Accordingly, under this structure, reinsurance coverage for an insurance provider is secured entirely by an ability to draw down on the LOCs presented by Vesttoo.”
It goes on to state that Vesttoo admitted that a number of the LOCs in question were fraudulent, unknown to Aon and White Rock.
The docket states, “On information and belief, the fraudulent Vesttoo LOCs could total in the billions of dollars. Given the imminent collapse of Vesttoo expected to flow from this discovery, on information and belief, Vesttoo intends to remove all or substantially all funds from its United States bank accounts and dissipate the funds making them near impossible to recover.”
It then states, “Vesttoo breached its obligations under its agreements with White Rock. Most fundamentally, as discussed in further detail below, Vesttoo breached its obligation to provide White Rock with acceptable security.”
Before saying, “In addition to immediately providing White Rock with acceptable security, the agreements between the parties mandate that Vesttoo immediately indemnify White Rock and return to it all the distributions paid under the relevant agreements in the event the assets were insufficient to meet obligations.”
White Rock intends to file for arbitration against Vesttoo in Bermuda, but notes that this would be futile unless the assets are frozen in the United States to prevent their removal.
The court has now issued a temporary restraining order, enjoining (preventing) Vesttoo from moving or disposing of assets in its bank accounts, except for funds in the amount of $1,000,000, which can be used “to pay Vesttoo’s employees, taxes, and existing subcontractors and suppliers essential to Vesttoo’s ordinary course operations.”
Truist Bank has been ordered to freeze Vesttoo’s accounts except for this $1 million.
Vesttoo has also been ordered to respond to requests for discovery documents, while staff need to appear for deposition with White Rock’s counsel and a court hearing will be held on August 15th where they can appeal the move, it appears.
The focus now will be on sourcing whatever documents are available that can help to shed light as to how this fraud occurred, which should speed greater understanding for the market as to where the true exposure is, how much it could cost and also what the ultimate source was.
Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.
