Vesttoo bankruptcy move halts Aon White Rock legal action (for now)

The move by beleaguered insurtech Vesttoo to file for Chapter 11 bankruptcy protection has resulted in the legal action being pursued against it by broker Aon’s segregated account and transformer company White Rock Insurance SAC being halted and the temporary restraining order being removed.

The day at court, which was a move by Aon’s White Rock to take Vesttoo to an arbitration trial as it seeks the return of funds related to collateralized reinsurance deals facilitated by the insurtech that had been replaced by invalid letters of credit (LOCs), began with an acknowledgement of the bankruptcy filings, but noted that not all Vesttoo entities were automatically covered by this.

As a result, the lawyers representing Aon’s White Rock SAC company sought to continue their case, with one Vesttoo entity in Delaware seen as missing from the bankruptcy filings.

The lawyers for Aon’s White Rock Insurance SAC Ltd. said that, “To the extent Vesttoo entities have not sought relief under chapter 11, this action is not and should not be stayed, whether automatically or in the exercise of this Court’s discretion. Petitioner respectfully requests that this Court permit Petitioner to proceed with the expedited discovery previously granted by this Court’s Order to Show Cause (ECF No. 27) against Respondent Vesttoo RT SPV LLC and any other Vesttoo entities that have not sought relief under chapter 11.

“In particular, Petitioner respectfully requests that it be permitted to take the depositions of the former Vesttoo employees identified in this Court’s Order to Show Cause. Expedited discovery is necessary to allow White Rock to adduce evidence and better understand the facts concerning what appears to be a massive fraudulent scheme and to take steps as expeditiously as possible to pursue complicit parties.”

But, it transpired that this Vesttoo RT SPV LLC company in Delaware was an inactive entity, so as a result all of Vesttoo’s entities were deemed to have fallen into bankruptcy, making the case against them impossible to hear.

At the New York court appearance yesterday, the fact all Vesttoo entities had been moved towards bankruptcy resulted in the judge staying the Aon White Rock legal case and placing the case on its suspense docket.

At the same time, the temporary restraining order secured against Vesttoo which had frozen the insurtech’s funds was vacated, or cancelled.

The court said it will retain jurisdiction over the case, in case any Vesttoo entity emerges from bankruptcy and the petitioner, White Rock Insurance SAC Ltd. renews its action seeking relief.

So, it appears that, for now at least, Vesttoo has successfully warded off the legal action by Aon’s White Rock through its placement of all of its entities into bankruptcy.

There are likely other legal avenues that broker Aon can pursue, such as petitioning the bankruptcy court, while ongoing criminal investigations (we reported previously that the FBI is looking into the allegations of fraud) could also see remedies that benefit the broker and its clients, and a law suit against persons deemed responsible would be another avenue. In time and if the funds are recoverable, of course.

But, as we also reported, the sums involved here are significant, Aon itself is seeking the return of $136.7 million of funds that had been distributed to Vesttoo by White Rock, but the LOCs that were installed to support the reinsurance contract were deemed invalid by the bank involved (China Construction Bank).

Of course, Aon is not the only party that is likely seeking to recover funds lost to this fraud, so Vesttoo is likely to remain under significant pressure.

At least, and as we stated yesterday, that is until Vesttoo clearly releases information as to what it knows, or has learned through its own and third-party audits and investigations, highlighting the actor(s) behind the fraud, as that remains the only way for the insurtech to flee the shadow that now hangs over it.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.