Aon says Vesttoo bankruptcy suit alleging CPI product fraud is 'perverse' attempt to shift blame

By Ashish Tiwari

Aug 14 - (The Insurer) - The Vesttoo Creditors Liquidating Trust (VCLT) filed a complaint on Wednesday against Aon and China Construction Bank (CCB) alleging fraudulent conduct and other wrongdoing in relation to collateral protection insurance (CPI) transactions, claims the broker has described as an attempt to shift responsibility for Vesttoo’s “deliberate fraud”.

The lawsuit was filed in the U.S. Bankruptcy Court for the District of Delaware by Lawrence Hirsh as Liquidating Trustee.

It names Aon and various entities under its umbrella including Bermuda, UK and reinsurance subsidiaries and its White Rock (SAC) vehicle as defendants, along with CCB, former Vesttoo employee Ehud Ginati, former CCB employee Lam Chun-Yin, Yu Po Holdings and its former director Cheng Wai and employee Yu Po.

It is the latest in a mass of litigation spawned by the 2023 collapse of Vesttoo, the Israeli insurtech at the center of a fraudulent letter of credit (LOC) scandal that rocked the industry and led to losses for many parties involved in transactions its capacity was purported to have backed.

After initially stating the source of the fraud was external, the insurtech then said former executives were engaged in misconduct, including allegations that ex-CEO Yaniv Bertele and chief financial engineer Alon Lifshitz were directly involved in personally creating fraudulent documents, along with a “wholly fictitious person” to “sign” them.

Previous litigation has included Aon’s White Rock unit suing CCB over the alleged Vesttoo fraud.

The VCLT complaint is now seeking to recover funds as dozens of Vesttoo entities as debtors attempt to pay back creditors that took losses in the fallout.

In a statement following the filing of the lawsuit against Aon, CCB and others, Hirsh claimed: “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 of intellectual property valuation," Hirsh alleged.

"Aon 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 destabilized the global insurance market," he continued.

AON SAYS COMPLAINT ATTEMPTS TO SHIFT RESPONSIBILITY FOR FRAUD

But in a statement provided to The Insurer, an Aon spokesperson countered: “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.”

The spokesperson added that Aon will “vigorously defend” itself against these “meritless claims” and continue to maximize recoveries for its clients and “strengthen standards” across the industry.

CCB did not immediately respond to a request for comment.

As previously reported, Aon initially recognized a $197 million charge in its Q4 2023 earnings for a Vesttoo-related settlement fund.

In 2024, it sold technology and IP assets to Moat Metrics in a move that refocused Aon’s IP practice on broking and away from valuation.

The valuation by Aon of IP assets in relation to CPI policies is a key part of the VCLT complaint.

The complaint claims that Aon and White Rock were incentivized to provide "sky-high" valuations of the underlying IP in the CPI transactions, which could then increase the size of the underlying loan (and the size of the CPI policy and associated premium) and "ensure that the transaction closed by lowering the perceived risk of loss for other transaction parties".

It alleges that at the same time Aon was "touting" its valuation capabilities in relation to IP and its CPI product, its employees were "sounding alarms internally regarding the creation of 'potentially catastrophic' liability for Aon and 'persistent and significant cultural issue(s)... deeply embedded within the valuation team', including 'insane' conflicts of interest".

AON ALLEGED TO HAVE IGNORED RED FLAGS

The complaint further claims that Aon ignored red flags over the LOC capacity from Vesttoo's investors, instead concealing its concerns from counterparties "to convince them to participate in Vesttoo-backed CPI deals."

Hirsh added: "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.”

The complaint claims Aon ignored warning signs of a scheme allegedly involving Vesttoo employee Ginati and CCB employee Lam to forge letters of credit, misleading Vesttoo into believing the collateral was genuine. Aon allegedly failed to carry out due diligence on Vesttoo or the LOC collateral, yet continued promoting Vesttoo-backed deals.

Despite Vesttoo’s investigation previously identifying a number of former management employees as being involved in the alleged falsification of LOCs, the complaint only names Ginati as a defendant.

It also claims that it was in July 2023, during a review of several LOCs in relation to the SuperPedestrian CPI deal involving Vesttoo, White Rock and Markel, Vesttoo learned that the LOCs were not legitimate.

“Because the fraudulent LOC scheme had been carried out by a small group, including Ginati, almost everyone within Vesttoo was caught by complete surprise by the news,” it claims.

Among the counts in the complaint are fraudulent transfer of funds against White Rock, recovery of avoided transfer against White Rock and Aon, fraudulent inducement against various Aon entities, unjust enrichment for professional fees against various Aon entities, fraudulent misrepresentation against various Aon entities, and fraud against Ginati, Lam, Wang/Fu, Wai and Yu Po.

Aon subsidiary White Rockhad last year in August sued CCB in New York, arguing that the bank acted as a “lifeline” to the Vesttoo fraud by issuing fake LOCs and that the insurtech had “an inside man” at the bank.

Separately, Hirsh sued McKinsey & Company and McKinsey Israel on Wednesday for allegedly providing false information to cedents and ignoring how a hyper-concentrated reinsurance investment business posed an existential risk to Vesttoo before the fraudulent LOC scandal led to its collapse.