April 12, 2024

New York AG questions whether a $175 million bond insurer can bail out Trump

New York’s attorney general on Thursday questioned whether the company that sought to post a $175 million bond for former President Donald Trump is actually good for the money — or even allowed to operate in the state.

AG Letitia James’ aggressive action came after Knight Specialty Insurance Company – a relatively unknown entity with tangential political ties to the former president – ​​was forced to disclose its finances.

Attorneys for the law enforcement agency filed a brief in which they “hereby make an exception to the adequacy of the bond,” noting that KSIC is attempting to operate “without a certificate of qualification.” Under New York law, state regulators have certain standards to ensure that an insurer is “solvent, responsible and otherwise qualified to make the types of policies or contracts required.”

The AG has given Trump and his rescuers 10 days to, as government lawyers put it, “justify the bond.”

Moreover, the additional investigation has raised the question of whether this insurance company has enough money to meet the capital requirements for making the bond available.

On Thursday, Trump’s lawyers posted papers detailing the finances of two companies — Knight Specialty Insurance Company and another entity called Knight Insurance Company LTD — that together claim to have assets worth a combined $2.7 billion. However, only the first of those two is actually listed in the court documents as agreeing to the money if Trump loses the case.

Knight Specialty Insurance Company alone does not have the “surplus” reported in its financial statements to meet the capital requirements for making the bond available. New York law limits how much money state-regulated surety companies can put down on one bond to 10 percent of what’s called the company’s total “capital and surplus.”

In a midday court filing, Knight Specialty Insurance Company revealed it currently has just $138 million in “surplus.” This means that the bond it has decided to place for Trump breaks the 10 percent barrier and exceeds a whopping 127 percent of the company’s specific reserves.

But just before the new paperwork was filed, Amit Shah, president of Knight Specialty Insurance, told CBS that the company has a new theory as to why state capital requirements don’t apply to their business: because Knight Insurance isn’t even registered to operate as a surety in New York.

“Knight Specialty Insurance Company is not a domestic insurer in New York, and New York’s surplus lines insurance laws do not govern the solvency of non-New York insurers with surplus lines,” he told CBS.

It’s unclear what happens next, but Trump owes the New York Attorney General’s office $464 million after AG Letitia James and her investigators proved during a recent trial that the real estate mogul committed bank fraud by relentlessly lying about the value of his property. more than a decade. The verdict has been appealed, and Trump has managed to halt the dramatic property seizures of his beloved Seven Springs estate north of Manhattan by posting a bond — in other words, by getting a bail bond company to promise it will pay if he loses the case.

State insurance regulators limit how much money a surety company can promise to pay, given the risk inherent in suddenly owing a huge amount of money. It’s similar to the way financial regulators keep banks solvent: by stopping them from over-indebting themselves.

Thursday’s filing raises serious questions about the risk to New York State. Knight Specialty’s “capital and surplus” has actually remained lower for the past four years than its current $138 million, according to an assessment by a government-based Texas nonprofit that tracks such numbers. According to the Surplus Lines Stamping Office of Texas, Knight Specialty had $57 million available in 2020, $80 million in 2021 and $101 the following year.

The statement that Knight Specialty Insurance is not subject to the capital requirements because it is not a New York company subject to state solvency rules raises further questions about why Trump would choose a company that is not even licensed by the New York Department. of Financial Services.

Shah, the president of Knight Specialty Insurance, also claimed to CBS that his company has more than $1 billion in “shareholders’ equity,” although the financial statement released Thursday only shows that the company has $26 million in “cash and bank deposits” and has $483 million in shares. and bonds. In fact, the “total authorized assets” are $539 million – roughly what Trump would ultimately have to pay for committing bank fraud if all the interest is added up.

The situation has bond industry experts remarking that Trump — who was desperate for the money and couldn’t find a company willing to put himself on the hook for the entire half-billion-dollar bank fraud judgment — has now relegated himself to a obscure firm that doesn’t appear well positioned to take the risk, according to two bond industry experts who spoke to The Daily Beast on condition of anonymity.

Moreover, Knight Specialty had not initially provided this information – and did so only after clerks in New York rejected the company’s original bond and ordered the paperwork corrected.

All lawyers working on the bank fraud case received a warning from the clerk’s office at 10:23 a.m. Wednesday stating that the document had been returned “for correction.” The paperwork submitted by Knight Specialty, through Trump attorney Clifford Robert, did not show that the company’s attorney had the legal authority to represent the company. But more importantly, Knight Specialty had not included a snapshot of its own finances.

The mistake was made first public by Jeffrey K. Levine, an attorney representing one of the AG’s key witnesses who testified during the bank fraud trial about Trump’s propensity to lie about his own financial statements, former Trump confidant Michael Cohen.

“In this endeavor, with so much at stake, it’s almost unthinkable to make these kinds of mistakes. And it’s compounded by the missing financial statement. That adds to the drama,” Levine told The Daily Beast .

Knight Specialty did not immediately respond to an email seeking comment.

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