Buckle, now a fronting specialist for MGA programs and previously a rideshare and gig insurance company, has become the latest to reveal issues caused by fraudulent reinsurance letters of credit linked to Vesttoo and is now suing the purported LOC provider China Construction Bank for damages.
Buckle is the latest and alongside its wholly owned insurance underwriting carrier Gateway Insurance Company, it is claiming damages to cover nearly $10 million of letters of credit, as well as at least $3.3 million to cover other consequential damages, expected reinsurance claims amounts, and fees.
Nine letters of credit are the subject of Buckle’s lawsuit in an Illinois court against China Construction Bank entities, with the plaintiff claiming the bank had signed off on $9,799,895 of collateral across the nine LOCs.
Buckle is asking the court to award it at least the face value of the LOCs, plus the additional $3.3 million and requests jury trial to decide the matter.
The court action arose as Buckle claims China Construction Bank (CCB) failed to honour the LOCs, that were supposed to have collateralized reinsurance obligations owed to Gateway.
China Construction Bank’s lawyers claimed the bank had not issued the LOCs, but Buckle claims everything about the documents appeared “institutional” and says it was clear they had been through multiple layers of sign-off within CCB.
It left Gateway and its owner Buckle in a tenuous situation, when the security for the reinsurance evaporated as the LOCs were deemed forged.
That resulted in the plaintiffs being placed into receivership and having to run-off all existing business, which ultimately drove Buckle’s pivot to shutter its rideshare and gig insurance business and start again as a fronting specialist for small to mid-sized MGA’s.
“CCB’s disavowal of, and refusal to honor, the LOCs has caused catastrophic harm to Plaintiffs,” the complaint filed in the Illinois court states. “Plaintiffs have suffered direct financial losses in the amount of the LOCs’ face value, as well as massive consequential damages including reputational harm, loss of business, termination of business relationships, loss of business opportunities, and the potential for insolvency.”
Buckle’s case boils down to its claims that CCB bears responsibility for these LOCs, given they had been through seemingly institutional approval processes and the bank had opportunities to ensure their validity or raise any concerns that arose. While also highlighting the fact former CCB employee Chun-Yin Lam (previously named in various cases related to Vesttoo and under investigation in Hong Kong for bribery and receiving payments linked to the fraud) must have been operating with the knowledge of CCB entities or related employed persons.
The fact Buckle has taken a while to launch a court case related to the damages it suffered from the Vesttoo fraud is perhaps not surprising given the effects on its business.
With some $2.81 billion of reinsurance letters of credit issued to support Vesttoo reinsurance deals linked to China Construction Bank, and in total some $3.36 billion of standby letters of credit (LOC) presumed to have been fraudulently created under the Vesttoo scheme, Buckle may not be the last.
Separately, broker Aon continues to progress towards discovery and push forwards its White Rock court case against CCB, while a number of other cases related to the Vesttoo fraud are also still ongoing.
Recoveries have been minimal, or zero in the cases of some of the damaged ceding companies. With so much in LOC value deemed lost due to the fraud, it would not surprise to see other court cases emerge over time.
Meanwhile, criminal charges against those that perpetrated the fraud remain largely absent from the legal proceedings seen so far (aside from the bribery case in HK).
Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.
