Personnel from New York Attorney General Letitia James’ office were expected to be in court Monday seeking to void the bond that was posted by Trump to secure the judgment in his fraud trial. Late Friday afternoon, James filed a memorandum in State Supreme Court saying that she doubts the $175 million bond posted by Donald Trump and his co-defendants in the civil fraud case can be relied upon. She urged the court to reject the bond and require a replacement to be posted within seven days. Trump and his co-defendants face a judgment totaling $464 million and an appeals court reduced the amount of the bond that would have to be posted to secure the judgment to $175 million. James argues that the bond Trump put up cannot be relied upon to secure even the reduced amount.
Judge Arthur Engoron is handling the civil case against Trump. James asks the court to “deny Movants’ motion to justify the surety, declare the Bond to be without effect, and order that any replacement bond be posted within seven (7) days, along with such other and further relief the Court deems necessary and appropriate.”
In the memorandum, James said, “After receiving this favorable ruling (reducing the size of the bond required), rather than select as the surety a large national insurance company licensed in New York, experienced in underwriting surety bonds, and with policyholder surplus far greater than $175 million, Defendants chose instead 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, had 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. Defendants and KSIC (collectively, “Movants”) have failed to justify KSIC as the surety on this extraordinarily large undertaking for a number of reasons.
“First, Movants fail to meet their burden of establishing that there is sufficiently secure and ascertainable collateral backing the bond. For collateral, the Donald J. Trump Revocable Trust (“Trust”) granted KSIC a priority lien on a Schwab brokerage account held by the Trust that Defendants maintain presently has just over $175 million in “cash.” But pursuant to the agreements governing how the collateral is pledged and controlled, the Trust retains ownership of the account and can withdraw funds or make trades in the account unless KSIC objects within two business days after receiving notice of the proposed transaction. KSIC does not now have an exclusive right to control the account and will not obtain such control unless and until it exercises a right to do so on two days’ notice. If the value of the funds held in the account dips below $175 million, the Trust 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.
“The Court should not rely on KSIC’s financial summary attached to the bond as evidence that KSIC has sufficient capacity to justify writing a $175 million bond. That is 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 its 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.
“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 is satisfied that the insurer’s management is trustworthy and competent. KSIC is not qualified to act as the 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.”
If the court agrees with James and requires the posting of a replacement bond but Trump and his co-defendants are unable to obtain such a bond or post the amount of the judgment in cash to be held by the court pending appeal, James could start a process that could lead to seizing assets of Trump and his co-defendants.
