Aon Faces Lawsuit Over Fraudulent CPI Product and Vesttoo Collapse

Aon faces a lawsuit alleging fraudulent practices in its Collateral Protection Insurance product, which may impact its risk solutions business and lead to reputational risks. The company is considering divesting Wealthspire Advisors and has made executive appointments. Aon's shares surged 4% despite trailing the broader US market's one-year performance. Analysts expect potential growth based on consensus price targets.

Aon, a global insurance brokerage, has been embroiled in legal turmoil following a lawsuit alleging fraudulent practices linked to its Collateral Protection Insurance (CPI) product. The lawsuit, filed by the Vesttoo Creditors Liquidating Trust in Delaware, claims that Aon's CPI program was sold on the back of unreliable valuations and conflicts, leading to the collapse of Vesttoo and significant losses for insurers and investors [2].

The lawsuit alleges that Aon's CPI structure was marketed as a way for high-growth companies to borrow against the value of their intellectual property (IP). However, the Trust claims that more than $2.8 billion in letters of credit (LOCs) were forged, and internal messages at Aon reflected unease about lending to pre-revenue borrowers and the difficulty of projecting IP values. Aon has denied the accusations, stating that the case is a "perverse attempt" to shift responsibility for Vesttoo's fraud to Aon [2].

The lawsuit has significant implications for Aon's risk solutions business and its reputation. The company is currently considering the divestment of Wealthspire Advisors and has made several executive appointments, including Jo Ann Jenkins joining the Board. Despite these strategic realignments, the lawsuit could strain client relationships and impact Aon's middle-market acquisitions and risk solution demand [1].

Aon's shares surged 4% in the short term, partially aligning with broader market movements, but the company's one-year performance trails the broader US market, which returned 19.4% over the same period. While Aon's shares remain at a discount to the consensus price target of US$410.46, analysts expect potential growth based on these targets [1].

The broader insurance sector is also facing scrutiny due to the lawsuit. Counterparty diligence, valuation governance, and product design will be closely examined, with renewed focus on verifying bank instruments in collateralized reinsurance and ILS-adjacent deals. The Vesttoo saga serves as a reminder that new pathways to capital must be built on verifiable collateral, independent valuation, and uncompromising gatekeeping [2].

References:
[1] https://uk.finance.yahoo.com/news/aon-aon-faces-lawsuit-over-172141979.html
[2] https://www.insurancebusinessmag.com/au/news/breaking-news/aon-slammed-with-lawsuit-alleging-fraud-over-unique-insurance-program-546331.aspx