Greensill Capital accused of fraud as battle to recoup losses intensifies
Japanese underwriter Tokio Marine has accused Greensill Capital of using ‘fraudulently obtained’ insurance policies, firing the latest salvo in the battle over who pays for the collapse of the supply chain finance company based in UK.
Greensill collapsed last year after his insurance cover was cancelled. The company, led by Australian financier Lex Greensill and backed by SoftBank, had used the insurance to guarantee that its borrowers would repay their debts. This allowed Greensill to sell the debt, most of it to Credit Suisse, where it was marketed to end investors as nearly risk-free.
Greensill’s implosion has sparked a global battle to recoup losses that run into the billions. Credit Suisse warned on Monday that legal action against insurers and companies that borrowed from its Greensill-linked fund could take “about five years”.
Tokio Marine’s statement on Monday marked the first time since Greensill’s insolvency in March 2021 that the Japanese insurer has formally accused its client of fraud.
He also confirmed that Greensill’s insurers would use the allegations of misrepresentation as a key defense against payment for the cover provided to the financial group.
Greensill’s policies were underwritten by an Australian subsidiary of Tokio Marine called The Bond & Credit Co. The Japanese parent group said it had discovered that “material matters for the underwriting of the policies had been fraudulently presented to BCC by Greensill “.
He added that there had been a ‘fraudulent failure’ to disclose ‘material matters’ before the policies were agreed and extended and that the misrepresentations continued after Tokio Marine bought the BCC operation in 2019 to Insurance Australia Group.
“In light of these fraudulent misrepresentations and fraudulent breaches of a [insured party’s] disclosure requirement, Tokio Marine today informed the counterparties that these policies and related obligations are void from inception,” the insurer said.
The statement will be a blow to Greensill investors, who see insurance claims as a way to recoup their losses.
The fallout from the Greensill scandal exposed the practices of BCC, the underwriting firm that provided it with the crucial insurance cover, which allowed investors to treat the financial group’s debts as almost risk-free.
BCC’s Sydney office has previously been visited by former British Prime Minister David Cameron, then an adviser to Greensill, underscoring its importance to the company. When a BCC executive was fired in 2020 for overstepping his underwriting authority, Greensill’s main insurers pulled out and he failed to find cover elsewhere, causing the group’s demise.
Tokio Marine, which first publicly questioned the validity of the insurance in March 2021, continued to say it would defend itself against any claims, including proceedings related to Greensill in Australia against IAG. People close to the Japanese insurer said Greensill’s insolvency process likely created a “claims pipeline” in the months and years to come.
IAG said Monday that it continues to “work together” with Tokio Marine to defend the claims and that it “maintains its position that it has no net insurance exposure to trade credit policies sold through of BCC”. IAG previously said it passed on any exposure to Tokio Marine as part of the BCC sale.
Greensill’s administrator declined to comment.
Credit Suisse said: “We firmly believe that the insurance policies concerned are valid and that the insurers’ claims are unfounded. We will take all necessary steps to safeguard the rights of supply chain finance funds and their investors and will vigorously defend our position.
In the bank‘s own disclosures on Monday, it revealed it had clawed back $43 million in wages from employees involved in supply chain funds, 10 of whom were laid off.
The bank was responding to questions from shareholders, led by the Swiss foundation Ethos, who were calling for a special audit into the bank’s failures on Greensill. Investors successfully campaigned for Credit Suisse to change a vote at its annual meeting this month that would have absolved directors and executives of the Greensill scandal.