A lot has already been written here and elsewhere about the many red flags with Donald Trump’s bond for the $464 million judgment against him in the NY falsifying documents case. Like how the bonding company, Knight Specialty Insurance Company, doesn’t appear to have enough cash on hand to cover the $175 million bond. Like how Knight’s financials are not audited. Like how KSIC is not licensed to do business in New York state. Like how KSIC says nothing in the bond about how it would cover the bond if it doesn’t have the cash on hand to do so — would it be covered by its parent company, Knight Insurance Company LTD? Would Trump crony and Knight’s owner Don Hankey-Pankey cover it? The bond doesn’t say. There’s also the pesky little question of if Trump’s lawyers lied to the appeals court when they told the judges they couldn’t find any company willing to provide a bond for the full $464 million judgment. It all stinks.
The Daily Beast reports another big red flag with the bond — which I hadn’t be aware of before — that makes things even stinkier: Knight’s parent company, Knight Insurance Company LTD, is based in the Cayman Islands, a notorious tax haven that could make it difficult, if not impossible, for New York AG Letitia James to collect on the bond if she needed to.
In the Daily Beast article, several insurance experts explain why the bond’s Cayman Islands connection is a big problem.
“This just stinks to high heaven,” said Dave Jones, who oversaw the nation’s largest insurance market as California’s insurance commissioner for seven years until 2018.
“Taken in its totality, this dog does not hunt. Along every step of the way, this purported bond is problematic. It’s just one issue after another that calls into question whether this bond could ever possibly satisfy the judgment,” said Jones, who’s now the director of the Climate Risk Initiative at University of California Berkeley.
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“The risk here is the company will not have the liquidity to pay on the bond when demanded, and the beneficiary of this bond, the New York AG, may not have a direct claim against the reinsurer,” said former New York Department of Financial Services superintendent Maria Vullo. “That the reinsurer is in the Cayman Islands compounds this issue as it is a non-U.S. jurisdiction, which makes collection very difficult.”
Tom Gober, a forensic accountant and certified fraud examiner who previously did work with the FBI and frequently appears as a witness in court, spells out in more detail why the parent company’s Cayman Islands location is a big concern:
“The Caymans are widely recognized as a ‘secrecy jurisdiction.’ If you called the regulator in the Caymans and asked, ‘Can you tell me if Knight reinsurance has enough to cover these claims?’ Their laws require total confidentiality. Why?” he asked.
“In my professional opinion, all you really have to know is that you don’t know. It’s not transparent and it ought to be. They have less regulation and zero transparency. That’s all I need to know,” he said.
The article also explains that KSIC has moved $323 million in liabilities off its books to its parent company KIC and two sister companies — all based in the Cayman Islands. One insurance regulator told the Daily Beast that KSIC appears to be playing a “shell game” with its parent company. The article also points out that these three companies are not regulated by the standard-setting and state government-assembled National Association of Insurance Commissioners—so they don’t even have the accepted NAICs code assigned to trusted firms.
There’s a lot more detail in the Daily Beast article, if you’re interested. Judge Engoron has scheduled a hearing for April 22 to go over the NY AG’s concerns with KSIC’s bond. It should be interesting. I can’t see how this bond will be accepted by the court, but time will tell.