Aon’s White Rock sues Chinese bank over Vesttoo LOC fraud

White Rock Insurance (SAC) Ltd., global insurance and reinsurance broker Aon’s segregated accounts company, has reportedly filed a lawsuit in New York against China Construction Bank as Aon seeks compensation for itself and its clients for damages related to Vesttoo collateral fraud, as first reported by our sister publication Artemis.

As the fall-out from the global reinsurance fraud scheme continues to develop, it’s understood that White Rock Insurance is alleging that someone working at the bank had represented that letters of credit (LOC) involved in the Vesttoo fraud were authentic.

Court documents seen by Artemis show that White Rock Insurance is represented by Quinn Emanuel Urquhart & Sullivan, LLP, and has filed a lawsuit acting in respect of itself and Segregated Accounts T-94, T-95, T-96, T-100, T-102, T-103, T-107, T-108, T-111, T-113, T-122, T-125, T-126, and T-127.

According to Artemis, overall, nearly $3.36 billion of standby LOC are presumed to have been fraudulently created under the Vesttoo scheme, with much of this believed to be linked to China Construction Bank.

Reportedly, White Rock Insurance is claiming a minimum $140 million in damages from the bank for the losses suffered as a result of the fraud.

“White Rock’s lawsuit against China Construction Bank is another step in our efforts to maximize recoveries for clients impacted by the Vesttoo fraud. China Construction Bank’s direct role in the issuance of fraudulent letters of credit enabled the fraud and the bank should be held accountable for the harm it has caused,” said a White Rock spokesperson.

The spokesperson describes the case as the result of “a global, multi-billion-dollar fraudulent scheme to defraud insurance companies engaging in reinsurance transactions,” explaining that cedents involved had used White Rock Bermuda to transform assets into re/insurance with a licensed Bermudian insurer.

“Vesttoo’s entire apparatus was premised on the Cedents’ confidence that the reinsurance transactions were fully collateralized by rock-solid letters of credit (“LOCs”) that Vesttoo procured from leading international banks.

“Based on those representations, the Cedents transferred to Vesttoo at least $140 million in premiums, paid into designated segregated accounts established under White Rock Bermuda’s corporate structure (the “Cells” and, together with White Rock Bermuda, “White Rock”). But in July 2023, it came to light that the issuing banks refused to honor the LOCs,” states the complaint.

The complaint goes on to state that “Vesttoo turned out to be a total sham, sustained by over $3 billion of useless collateral,” but notes that Vesttoo did not act alone.

“A recently-founded, small startup, Vesttoo had neither the credibility nor the track record required to engage in large-scale reinsurance transactions with the world’s leading insurance companies. Vesttoo’s key to this market was LOCs apparently issued by some of the world’s largest and most reputable banks, which purported to fully collateralize the reinsurance transactions. Those LOCs gave Vesttoo credibility and provided third parties with confidence that the transactions were safe and compliant with applicable Bermuda law. Without the LOCs, the parties involved—White Rock included—would have never engaged with Vesttoo,” reads the complaint.

Of the billions of dollars of in LOC that were meant to support the deals involved, most were found to be forged or invalid and many of those were said to have come from China Construction Bank (CCB), as reported previously by Artemis.

“LOCs issued by or out of CCB represented more than $2.8 billion of collateral CCB now refuses to honor. It was not that Vesttoo simply used CCB’s logo on a forged document and White Rock took its word for it. Rather, an inside man at CCB—an actual CCB banker acting for CCB as a Relationship Manager—represented to White Rock, its auditors, and other market participants that the LOCs were authentic,” states the complaint.

During the Vesttoo bankruptcy case, emails revealed that Chun-Yin Lam, a CCB employee, used an official bank email address to communicate with some of the Vesttoo employees accused of the fraud.

“By giving Mr. Lam access to its email domain, offices, and telephone system (and then breaching its duty to supervise him), CCB bestowed its full faith and credit on Mr. Lam. By so doing, CCB caused White Rock and others to justifiably rely on Mr. Lam’s representations to their detriment,” reads the complaint.

“Tellingly, according to official government records, Mr. Lam’s tenure with CCB closely tracked the fraud, and he ceased to be a licensed professional affiliated with CCB in July 2023—the exact same time the Vesttoo fraud was revealed,” it adds.

The complaint argues that CCB was the lifeline for the Vesttoo fraud, claiming that without CCB, the fraud could not have occurred as none of the Vesttoo reinsurance transactions would have closed or survived “had Mr. Lam not transmitted and confirmed the LOCs using an official CCB email account and CCB’s arm in New York—CCBNY.”

“Mr. Lam’s acts were committed entirely under the auspices of CCB, and CCB is directly and vicariously liable for them. CCB harbored a fraudster, gave him access to a CCB email address, office, and telephone number, and then failed to deter, prevent, and detect a massive fraud committed through those channels. On multiple occasions, White Rock, its auditors, and other market participants sought to verify the LOCs, and were satisfied when an unambiguous verification came from within CCB. White Rock thus reasonably and justifiably relied on Mr. Lam’s representations made on behalf of CCB,” reads the complaint.

White Rock provides numerous causes of the legal action against the bank, including fraud, fraudulent misrepresentation, fraudulent concealment, negligent misrepresentation, and also negligence. The company says that it seeks damages for each and all of these claims, to be determined at trial but in no case less than $140 million, as well as any costs, interest, fees incurred and any further relief the New York Supreme Court deems appropriate.

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