Alison Gill (24:51)
So, anyway, I thought that that was weird. All right, I'm going to take you to an insurance seminar after this quick break, and then we'll get to the good news. Everybody stick around. We'll be right back after these messages. We'll right back. Hey, everybody. Welcome back. Okay, so last week we did a deep dive on excess line insurance brokers and the Knight Specialty Insurance in Delaware and the Knight Insurance Company parent company that said it had a billion dollars in quote, unquote assets. And they are an alien insurer. They're called that because they are in the Cayman Islands, which is a really great, great place for insurance companies to be if you're a thieving, conniving dickhead now. And, hey, no shade to like, legit insurers who run their job, their businesses out of the Caymans. But that, that will come up in what the New York Attorney General has submitted in response to what's going on with this surety bond. She wants it to be totally rejected and she says why. She says the Appellate Division substantially reduced to $175 million the undertaking that the defendants were required to post to stay execution of this court's judgment pending appeal after receiving the favorable ruling of lowering that bond amount from 464 million to 175 million rather than select as the surety a large national insurance company licensed in New York, experienced in underwriting surety bonds and with policyholder surplus greater than 175 million. Instead, the defendants chose Knight Specialty Insurance Company. KSIC, a small insurer that is not authorized to write business in New York and thus not regulated by the state's insurance department, has never before written a surety bond in New York or in the prior two years in any other jurisdiction, and has a total policyholder surplus of just $138 million. Defendant and KSIC. Collectively, the movements have failed to justify KSIC as the surety on this extraordinarily large undertaking for a number of reasons. And then she lists three reasons. First, she says the movements fail to meet their burden of establishing that there is sufficiently secure and ascertainable collateral to back the bond. For collateral, the Donald J. Trump Revocable Trust granted KSIC a lien on a Schwab brokerage account held by the trust that the defendants maintain presently has just over $175 million in cash, and she put cash in quotes. But pursuant to the agreement governing how the collateral is pledged and controlled, the trust retains ownership of the account and can withdraw funds and make trades on the account unless KSIC objects within two business days after receiving notice of the proposed transaction. So not only is the the Schwab account still owned by Trump and operatable by Trump, but Trump would be responsible for notifying the Night Insurance company or their KSIC Night Specialty Insurance Company. You have to trust that Donald Trump would notify him that he's making any changes to that account, selling anything, trading anything, and then they. They have two days to object. That's if he tells them. That's if this is even. If this even exists. I'll get into that in a second. If the funds held in the account dip below 175 million, the trust, then Trump promises to true up the balance by depositing additional funds in multiple permitted forms, including stocks, a promise that is hollow if the trust does not have the funds to do so and concedes the value of the collateral will fluctuate based on market conditions. On the evidence submitted by movements in support of the motion, there's insufficient basis for this court to find that the bond is sufficiently collateralized by identifiable assets. So this almost exactly 175 million. I think it's got. They said 175.3 million. It's a Schwab account. It could fluctuate. So, no, you can't use this. And Trump still owns It. He could empty it. So, no, that's the first reason. The second reason, the court should not rely on KSIC's financial summary attached to the bond as evidence that they have the sufficient capacity to justify writing $175 million bond. That's because KSIC sends 100% of its retained insurance risk to affiliates in the Cayman Islands, where lax regulations allow KSIC to use this risk transfer to reduce the liabilities it carries on the books in a way that artificially bolsters its surplus, a practice New York regulators have dubbed shadow insurance, and about which they have sounded the alarm. So not only do you only. I mean, you. You only report $138 million in asset surplus that's probably inflated because they move their liabilities to kic, the parent company in the Cayman Islands. And third, under the regulations that govern the placement of insurance on an excess lines basis, a licensed excess lines broker may place business with an unauthorized insurer like KSIC only if it has satisfied that the insurer's management is trustworthy and competent. We're sorry, but KSIC is not qualified to act as a surety under this standard because its management has been found by federal authorities to have operated Affiliated companies within KSIC's holding company structure in violation of federal law on multiple occasions within the past several years. So these guys are not trustworthy or competent. For those reasons, the court should deny the motion and require the defendants to post a replacement undertaking within seven days of the court's ruling. I said 10. You remember? I. I think I told Ethan Behrman, and I think I said to you guys on the beans last week, you know, I think that this bond could be rejected. I think the court would probably give him 10 more days to find another one. But she. She wants to give them just seven. And then she goes on and talks about the surety, the fact that they didn't. They didn't even have power of attorney when they first filed, and they didn't include their financial statements. And also the $175 million Schwab account, that is, there's probably. There's more problems with that. They say movements submit a vague, incomplete and inconclusive evidence on the form for the collateral that is pledged for the bond. They contend the collateral account is cash, but they attach only a single screenshot from the account assessed through the Schwab online client portal that lists the title of the account, Wasmer Bonds. According to Schwab's website, Wasmer Bonds are fixed income products that Schwab offers that include various bond ladder strategies and portfolio options, as evidenced by the most recent statement for the same trust account produced by the defendants in this action. The complete statement from the account provides detailed information about the asset composition, change in the account value over month and year to date, investment detail and transaction detail, among other things. Putting aside the movement's motivation for submitting just the one paltry screenshot, without the full accounting statement, there's no way to gain any meaningful visibility into the nature of the collateral or to test the veracity of the claim that the account holds only cash as opposed to some other form of investment vehicle that fluctuates in value with market conditions, or gain any insight on how the form and market value of the collateral may have changed within the past month or year to date. And if the collateral is in the form of a wassemer fixed income product, there are certainly some inherent risks of fluctuation in value. The Wassemer Schroeder strategies are subject to various risks including but not limited to interest rate risk, reinvestment risk, credit risk, default risk and event risk, as well as increased loss of principal during periods of rising interest rates, among others. But even if the collateral is just cash at the moment, there's no restriction in place under the pledge Agreement that ensures the collateral will remain in the form of cash during the pendency of the appeal. Rather, the funds in the account can be traded for other investment vehicles, including mutual funds, in accordance with investment guidelines. Moreover, the account remains in control of Trump, with KSIC having merely a first priority lien on the funds unless and until KSIC provides a notice of exclusive control to Schwab, which takes effect within a reasonable period of time, not to exceed two banking days prior to that notice, if ever the trust can withdraw monies or securities, Trump can withdraw stuff from the account make trades without the consent of ksic, which is deemed provided if KSIC does not expressly consent to any proposed trade within two banking days. The Pledge Agreement also contains a true up provision that applies if the market you know if the value of the Schwab account drops and it obligates the trust within five calendar days to restore the value of the collateral. This provision is problematic for two reasons. First, the provision is further evidence that the movements contemplate the collateral will change in form and fluctuation. The provision would be unnecessary if the collateral were locked in as a cash only account in the amount of 175 million without any possible diminution. I guess you know, without it being able to lose value due to market volatility. And second, Trump can replenish the account with investment property, financial assets, or like property or other liquid assets, unrestricted in form by the investment guidelines and expressly defined to have the meaning set forth in the Uniform Commercial Code as in effect in any applicable jurisdiction, with financial assets deemed to include without limitation all property now or at the time hereafter held in the account, and more specifically to include stocks and mutual funds. So the potential under the pledge agreement control agreement for the movements to swap out one form of collateral for another, including replacing cash with mutual funds or truing up a balance with investment property and the value of the collateral to dip below 175 million due to market conditions, that matters a great deal under New York insurance law, given the minimal policyholder surplus carried by KSIC, that's they only have $138 million. So under new York insurance law, New York companies impose limitations on the amount of loss an insurer can expose itself to in any one risk. Quote, no insurer doing business in this state shall expose itself to any loss on any one risk in the amount exceeding 10% of its surplus to policyholders. Which here, because they only have $138 million, is $13.8 million. Where the surety exposes itself to a loss in the excess of that amount, it would undoubtedly be ultra virus. So there's actually a law that says you can't expose yourself to a risk greater than 10% of what you have, your asset to liability ratio. And they only have 138 million. So they can't expose themselves by a lot in New York to more than a $13 million, $13.8 million risk. And the volatility of that Schwab account poses that risk. So it's illegal to use that as collateral in the state of New York. And maybe if you were certified to sell insurance in New York, you would know that. So they go on to argue that the defendants failed to demonstrate KSIC as a financially sound surety for the bond governing excess lines. Remember, we talked about excess line insurance. As the movements note, New York permits unauthorized insurers like KSIC to conduct business in New York, but only through a licensed excess line broker. And they recognize excess line brokers licensed in New York. They may procure insurance from unauthorized insurers under limited circumstances. The court should look at the laws and regulations in New York governing the placement of insurance on an excess lines basis to determine whether the movements have met their burden to justify KSIC as assureder in New York. Excess lines brokers are required to exercise due care when selecting excess lines insurers and make inquiries sufficient to ascertain the insurer's financial stability and capacity adequate to do its business and shall not place coverage with an unauthorized insurer unless the insurer's financial statement or other evidence demonstrate that the insurer has surplus to policyholders sufficient to support its writings reasonable in relation to its outstanding liabilities. And we can't know what their outstanding liabilities are, right? Because they're hiding some of those in the Cayman Islands. Possibly. We don't know. That's a problem. Movements have failed, she says. To demonstrate KSIC meets those prerequisites for writing insurance in New York on an excess line basis and therefore their motion to justify should be denied. KSIC uses shadow insurance from its Cayman Islands affiliates to artificially bolster its financial capacity. That's the other argument which we talked about up at the top of this brief. And KSIC's management is neither trustworthy nor competent. She says regulations governing the placement of insurance by unauthorized insurers through an excess lines broker require the broker to ascertain that the unauthorized insurer's management is trustworthy and competent. That is New York law. These are terms of art for insurance regulators employed in a broader sense than such terms are popularly used. So these are very specific in the insurance world. Trustworthy and competent Courts have found insurers untrustworthy and incompetent for a variety of misconduct including placing misleading ads in newspapers, misappropriating premiums from insureds and violating provisions of insurance law. KSIC's management does not meet the trustworthy incompetent standard under the law. Don Hanke is the Chairman and Chief Executive Officer of KSIC and Amit Shah is the company's president. Misters Hanke and Shah are both on KSIC's board of directors. It's part of the Hankey Group of companies which includes insurers and car leasing and finance company. Hanke Group Company holds a symbiotic relationship to the other. In particular, Knight Specialty Insurance Company and Knight Insurance Company work with affiliate Westlake Financial Services llc, a company specializing in the acquisition and servicing of prime to subprime automotive retail installment contracts. In addition to their leadership positions with ksic, Shah is the Chief Operating Officer of the hankey group and Mr. Hanke is the Christmas poo. Mr. Hanke is the Chairman and Chief Executive Officer to the Hanke Group, Chairman of the Board of Westlake and the primary stockholder of all Hankey investment controlled entities including Westlake Financial. As a result, Don Hanke exercises ultimate control over all the business entities that comprise his namesake group. And In September of 2015, the U.S. consumer Financial Protection Bureau entered a consent order finding the Westlake and its subsidiary Wilshire Customer or Consumer Credit has violated numerous federal laws by pressuring borrowers through the use of illegal debt collection tactics, including using phony caller ID information, falsely threatening to refer borrowers for investigation or criminal prosecution, and illegally disclosing information about debts to borrowers, employers, friends and family. The CFPB ordered the companies overhaul their debt collection practices, provide restitution to the customers in the amount of $44.1 million, and pay a civil penalty of 4.25 million. Just two years later, these same two Hankey Group companies entered into a settlement with the Department of Justice to pay restitution and civil penalties totaling $760,000 to resolve charges that they violated the Service Member Civil Relief act by repossessing 70 vehicles owned by members of the armed forces without first obtaining the required court orders. The same companies agreed to pay additional penalties of $225,000 in September 2022 to settle the charges by the DOJ that violated other provisions of the law. On this record, the movements cannot demonstrate that KSIC's management meets the requirements of trustworthiness and competence under regulations governing insurance placed through licensed excess line brokers. Accordingly, this provides further independent basis for the court to deny the movement's motion to justify KSIC as the sure. So, based on the foregoing New York Attorney General, the people respectfully request the court deny their motion to justify the surety, declare the bond to be without effect, and order that any replacement bond be posted within seven days along with such other and further relief the court deems necessary and appropriate. Signed respectfully, Letitia James. So there you go. That's what's going on with the bond. And that hearing is, I think, today. No. Yeah, it's today. It's Monday, so that'll be fun. We'll talk about it on the beans tomorrow. All right, everybody, stick around. We'll be right back with the good news after these messages. We'll be right back, everybody. Welcome back. It's time for the good news, everyone. Then. Good news, everyone. Good news, good news. And if you have any good news, confessions, corrections. You want to play what the mutt, Find the cat. Cat Me? If you can. Opine on the bovine. What the heckwine? What the hell is in that shell? What's the model of your axolotl? What the Fark is in your ark. Send us a photo or a drawing or a description of an animal and we'll guess something about it. We love these. Also, you can send us your pod pet tax for sending in some good news. And if you don't have a pod pet, you can send us an adoptable pet in your area. We'll see if we can find a forever home for them. If you have thesis titles, dissertation titles would be stories, blanky stories, stuffed animal stories. Let's see photos of your happy place. Holiday pictures. I love the Santa photos all year round. I love Halloween photos all year round. You can send those baby photos. Dana loves the baby photos.
