In the ongoing court case that sees insurance and reinsurance broking giant Aon, via its White Rock SAC vehicle, pursuing beleaguered insurtech Vesttoo for reparations after letters of credit (LOCs) backing collateralized reinsurance deals were alleged to be fraudulent or forged, the broker is seeking a $136.7 million return of collateral.
As we reported on Friday, Aon is pursuing 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.
It appears from court documents seen by Artemis, that Aon’s White Rock is seeking the return of $136.7 million in collateral that it had distributed to Vesttoo, after the insurtech delivered letters of credit (LOCs) that were supposed to have backed up these funds.
The validity of those LOCs are now in question, the documents state “the banks identified in the Letters of Credit provided by Vesttoo have taken the position that the Letters of Credit are fraudulent”.
So, Aon’s White Rock is requesting the collateral be returned, and proceedings have then resulted in the successful temporary restraining order being secured to freeze Vesttoo’s funds while the court case proceeds.
The letter from White Rock’s lawyers states, “Vesttoo presented White Rock with Letters of Credit that purported to enable the PSAs’ Segregated Accounts to meet any and all liabilities and any and all collateral requirements. In reliance on these Letters of Credit and Vesttoo’s representations, White Rock made distributions from the Segregated Accounts to Vesttoo under clause 3 of the PSAs, totaling approximately $136.7 million.
“However, White Rock now understands that the banks identified in the Letters of Credit provided by Vesttoo have taken the position that the Letters of Credit are fraudulent.”
Adding, “Indeed, Vesttoo has stated publicly that its procedures were circumvented, leading to the apparent fraud.”
Aon’s White Rock letter to Vesttoo goes on to state that Vesttoo is in breach of its obligations under the Participating Shareholder’s Agreements, including failing in an obligation to provide Acceptable Security.
White Rock therefore is demanding the return of all $136.7 million in distributions made from the Segregated Accounts.
It goes on to remind Vesttoo that it agreed to provide adequate security, or collateral, to support the funding needs of the White Rock Segregated Cell.
While also reminding Vesttoo that it agreed to indemnify White Rock in the event assets of the Segregated Account fail to meet its obligations.
So, it appears that what’s happened is the original collateral has been distributed to Vesttoo by White Rock, after LOCs were put in place that should have secured its value had they been valid.
Suggesting this was a replacement of existing collateral by a LOC, rather than use of an LOC to collateralize the reinsurance contract obligations in the first place.