Liquidating trust for Vesttoo sues Aon

The creditors liquidating trust for collapsed insurtech Vesttoo sued Aon and China Construction Bank and various affiliates Wednesday, alleging fraudulent conduct and other wrongdoing.

The complaint alleges that Aon used Vesttoo to grow its collateral protection insurance business while ignoring “red flags” about Vesttoo’s collateral providers, exposing the insurance industry to hundreds of millions of dollars in losses. The lawsuit was filed in the U.S. Bankruptcy Court for the District of Delaware by the Vesttoo Creditors Liquidating Trust.

Aon said it was also a victim of the alleged fraud. The lawsuit represents “a perverse attempt by Vesttoo’s bankruptcy estate to shift responsibility for Vesttoo’s deliberate fraud to Aon,” the brokerage said in a statement.

The Vesttoo scandal involved allegedly fraudulent letters of credit purportedly issued by China Construction Bank. Aon unit White Rock Insurance (SAC), a Bermuda-based segregated account company, worked with Tel Aviv, Israel-based Vesttoo on various intellectual property insurance and reinsurance deals. Vesttoo filed for bankruptcy protection in 2023.

“When Aon became aware of significant red flags concerning the LOC capacity from Vesttoo’s investors, Aon not only looked the other way, but also concealed its concerns from counterparties to convince them to participate in Vesttoo-backed CPI deals,” the complaint alleges.

“Aon knew there were serious flaws in its CPI product, yet continued to falsely market it as the gold standard in intellectual property valuation,” liquidating trustee Lawrence Hirsh said in a statement.

“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,” Mr. Hirsh said.

The complaint alleges that CCB, through employee Lam Chun-Yin, created over $2.8 billion in fake LOCs that were then used to back Vesttoo’s reinsurance transactions. CCB’s reported U.S.-facing LOCs outstanding jumped from $80 million on Dec. 31, 2021, to $1.28 billion on Dec. 31, 2022, according to the complaint.

Defaults on CPI loans led to the discovery that Aon’s valuations of intellectual property collateral were “vastly inflated,” the complaint alleges. “As a result, the insurers and reinsurers that insured the IP’s value ultimately were called upon to make hundreds of millions of dollars in claims payments,” the suit alleges.

In its statement, Aon said, “We will vigorously defend Aon against these meritless claims and continue to take steps to both maximize recoveries for our clients and strengthen standards across the industry.”