Leadenhall doubles down in $350mn+ collateral fraud suit as it targets New York insurance group A-Cap

Leadenhall Capital Partners is now focusing its legal firepower on Advantage Capital Holdings LLC (A-Cap), claiming the New York-based insurance holding company exerts significant control over 777 Partners and acted as “co-conspirator” in an alleged $350mn+ collateral fraud.

The London-based ILS manager sued 777 Partners in early May seeking "unspecified damages” and accusing the investment firm and its co-founders Josh Wander and Steven Pasko of fraudulently borrowing against $350mn in assets, alongside a series of other explosive allegations. Leadenhall has also successfully obtained a freezing order on 777 Partners’ assets.

777 Partners and its joint defendants deny the accusations and last month sought to have Leadenhall’s claim dismissed by the US Court for the Southern District of New York, citing lack of jurisdiction among other challenges.

But Leadenhall filed an amended complaint with the same court on 30 August, this publication can reveal, which seeks to place A-Cap at the heart of its allegations by claiming 777 Partners’ scheme would not have been possible and would not have been “able to operate undetected for so long” without the aid of A-Cap and its executives.

In the complaint, Leadenhall alleges that 777 Partners and A-Cap conspired to “double-pledge” hundreds of millions of dollars’ worth of collateral that was supposed to be pledged only to Leadenhall.

The ILS manager entered into a lending agreement with 777 Partners and 600 Partners in May 2021. The deal was pursuant to a secured credit facility with borrowers affiliated with 777 Partners.

The original complaint – extending to more than 80 pages – alleged that some of the collateral behind the facility had been “double-pledged” by 777 Partners, in breach of the parties’ agreements.

Leadenhall’s suit alleges that Wander later referred to the double-pledged collateral as “embarrassing” and a “mistake”. It added that Wander “freely admit[ed] that 777 Partners had breached the parties’ agreements while insisting that it had done so inadvertently”.

A-Cap and one of its subsidiaries – Haymarket Insurance Company – sought to intervene in Leadenhall’s explosive fraud suit in late July, arguing that it holds a “first-priority security” interest in all assets of both 777 Partners and 600 Partners, a move first reported by this publication.

A-Cap – an investor in 777 Partners since 2020 – currently serves as the senior secured lender to 777 Partners and 600 Partners under a HoldCo loan agreement signed in November 2023, according to court filings.

The holding company also owns majority interests in a number of US insurers including Atlantic Coast Life Insurance Company, Haymarket Insurance Company, Sentinel Security Life Insurance Company and Ability Insurance Company.

Leadenhall – which has an estimated $6bn in assets under management – argues in its latest complaint that while A-Cap has portrayed itself a “senior” or “first-lien” lender to 777 Partners, the reality is “more nuanced”, with the company and its leadership serving as a “co-conspirator” alongside the investment firm.

“The scheme would not have been possible – and would not have been able to operate undetected for so long – without A-Cap. While claiming to be nothing more than a ‘senior’ lender to Wander, Pasko, and their constellation of businesses, A-Cap has not acted like one,” Leadenhall argues in its amended complaint.

“If it ever was an arm’s-length lender, it knowingly and willingly crossed the line to become a co-conspirator and participant in Wander and Pasko’s enterprise by perpetuating the lie to Leadenhall.”

The complaint also alleges that A-Cap and its CEO and chairman Kenneth King exerted – and continue to exert – a level of control over 777 Partners’ operations during the alleged fraud scheme executed against Leadenhall.

“The 777 defendants’ partner and co-conspirator in this enterprise is A-Cap, under the control of King, who has financed Wander and the 777 entity defendants since at least February 2020. While King and A-Cap publicly portray A-Cap as an arm’s-length ‘senior’ lender to the 777 entity defendants, it is anything but,” it says.

Leadenhall argues that the terms of A-Cap’s financing “stand in stark contrast” to an arm’s-length commercial lending arrangement.

The ILS manager alleges that King and A-Cap exerted their “undue and self-interested influence” over the 777 defendants by “directing the 777 entity defendants’ ownership and management as to what decisions to make and how to implement them”, and by “installing A-Cap and its employees on site at 777 to ensure compliance with, and execution upon, A-Cap and King directives as to the operations of the 777 entity defendants and their daily decision-making”, among other things.

As previously reported, Leadenhall’s suit alleges that 777 Partners and its affiliates had forged documents and faked records, arguing that the firm was operating “a giant shell game, at best, and an outright Ponzi scheme, at worst”.

In its amended complaint, the MS&AD-owned firm doubles down on its previous accusation that the investment firm and its co-founders borrowed against $350mn in assets that "it didn’t own, didn’t exist or were already promised to someone else".

“Wander, Pasko, and 777 falsified the collateral underlying Leadenhall’s credit facility because they wanted money they did not have and, based on the true condition of their business, would not have been permitted to borrow,” Leadenhall states.

“Their use of false collateral to induce lenders to make loans, and their use of those loans to purchase more receivables to tout as collateral for other loans, enabled them to keep their sprawling enterprise going when it should have folded – facilitating both personal enrichment on a grand scale and money-losing passion projects like the acquisition of professional sports teams.”

777 Partners and its affiliates have been the focus of growing scrutiny over the investment firm’s attempted purchase of a majority stake in English Premier League team Everton Football Club, along with its ownership of football teams around the globe, including Italy’s Genoa, Hertha Berlin in Germany and Brazilian side Vasco da Gama.

As previously reported, 777 Partners confirmed to this publication that it suffered a “temporary delay” in the payment of working capital owed to Everton. That came after Obra Capital filed a lawsuit in New York alleging that the additional scrutiny following the proposed Everton purchase had caused 777 Partners’ “house of cards” to begin to crumble.

Obra’s lawsuit was related to 777 Partners’ transfer of Sutton Specialty Insurance and Sutton National Insurance to the investment firm’s co-founder Pasko, a transaction that completed late last year.

In a statement to The Insurer following the new filing, Leadenhall’s external legal counsel said: “The amended complaint highlights the strength of Leadenhall’s claims, brought to maximise recovery for its investors, against 777 Partners, A-Cap and other named defendants.

“While the court has already acknowledged the robustness of the claims by issuing an asset-freezing order to prevent further harm against Leadenhall and its investors, the amended complaint expands on the extensive timeline and facts supporting our legal claims, including A-Cap’s role in the alleged fraud.

“We remain confident in our strong legal case and look forward to moving ahead with the discovery phase of the litigation, during which we expect to receive communications and other documents from defendants to further reinforce our allegations.”