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UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF FLORIDA 

MIAMI DIVISION 

In re: 

Performance Insurance Company SPC, 

Debtor in a Foreign Proceeding. 

Chapter 15 

Case No. 21-12609 (AJC) 

OPPOSITION OF LEXINGTON INSURANCE COMPANY TO MOTION TO COMPEL 

TURNOVER OF FUNDS HELD AT KEYBANK NATIONAL ASSOCIATION 

Lexington Insurance Company (“Lexington”), an insurance company that is an indirect, 

wholly owned subsidiary of American International Group, Inc. (“AIG, Inc.” and, together with 

Lexington and other related entities, “AIG”), by and through its counsel, respectfully submits this 

objection to the Joint Liquidators (the “Foreign Representatives” or the “JOLs”) of Performance 

Insurance Company SPC’s (the “Debtor” or “Performance”) Motion to Compel Turnover of Funds 

Held at KeyBank National Association [ECF No. 23] (the “Motion to Compel”) seeking an order 

directing KeyBank National Association (“KeyBank”) to turn over the funds in a bank account 

held by Goldenstar Holdings Company SP (“Goldenstar Holdings”) pursuant to section 1521(a)(7) 

of Title 11 to the United States Code (the “Bankruptcy Code”),1 and respectfully states as follows: 

SUMMARY OF THE OBJECTION 

1. This bankruptcy case stems from the Debtor’s participation in a scheme to sell 

counterfeit insurance policies and defraud the public. The Foreign Representatives’ request should 

 

1

 Terms not otherwise defined herein shall have the meaning given to them in the Motion to Compel. 

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be denied because they are trying to obtain control and ownership over money that was the fruit 

of a fraudulent scheme that defrauded both AIG and thousands of policyholders and that cannot 

be a part of the bankruptcy estate. Turnover here would sanction the Foreign Representatives 

taking money that was stolen from policyholders who were duped by Debtor and its partners in 

crime into buying fraudulent policies that were issued on Lexington’s paper without Lexington’s 

permission or approval. The money in question is the premium that was collected in the fraudulent 

scheme; as such, it is not a part of the Debtor’s estate. Indeed, Performance and its co-conspirators 

acknowledged in Kentucky District Court that this money should be used for the sole purpose of 

satisfying any claims made by those policyholders and agreed to Consent Orders that expressly 

established that the money could only be used for that purpose. The Foreign Representatives are 

now disregarding the Consent Orders by attempting to take control of that money and are asking 

this Court to disregard both the Consent Orders and Performances’ previous 

agreements. Moreover, the Motion to Compel should have been brought before the Foreign 

Representatives attempted to obtain the money from KeyBank, not after. 

2. The Debtor is a segregated portfolio company based in the Cayman Islands that was 

used to perpetrate the fraudulent scheme on policyholders located throughout the United States (and 

on AIG). The fraudulent policies and the individual certificates issued thereunder purport to insure 

thousands of sports teams and leagues (mostly in youth sports) and an exponentially larger number 

of individual athletes. Some of the fraudulent accident and health policies—for combat sports and 

football—have million-dollar limits for certain brain injuries, and some of the fraudulent general 

liability policies have limits up to $4,000,000. Every insured was under the impression that, if a loss 

occurred, Lexington would pay the claim. In fact, however, every policy at issue was a counterfeit, 

and claims would be paid only if the fraudsters decided to pay them. The Foreign Representatives 

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seek access to funds currently held in the Debtor’s bank account at KeyBank with account ending 

XXX1886 (the “KeyBank Account”). Those funds were at the center of the fraudulent scheme, and 

case law has long held that (i) funds obtained by a debtor through means of fraud are not property of 

the debtor, and (ii) stolen property cannot be used to benefit the debtor’s bankruptcy estate. 

3. The Debtor’s conduct is plainly unlawful. It has violated the Lanham Act, which 

imposes the harshest punishments in counterfeiting schemes like those here, as well as federal 

trademark law, state unfair competition law, and criminal liability. It has also given rise to claims for 

relief filed by policyholders under the Racketeer Influenced and Corrupt Organizations Act (“RICO”) 

and various state and common law claims, as described below. 

4. To that end, on May 11, 2020, Lexington filed a complaint (the “Complaint”) and 

contemporaneously sought a temporary restraining order (“TRO”)2 in the United States District Court 

for the Western District of Kentucky styled Lexington Insurance Company v. The Ambassador Group 

LLC, et al, case no. 20-00330 (JRW) to put an end to Debtor’s and Debtor’s co-defendants’ ongoing 

and brazen fraud scheme [KY Dkt. No. 1] (the “Kentucky Litigation”). In the Kentucky Litigation, 

the Kentucky District Court entered two consent orders, one in May 2020 [KY Dkt. Nos. 16, 17] and 

the other on October 13, 2020 [KY Dkt. No. 62] in response to requests for injunctive relief 

(collectively the “Consent Orders”)3

 directed at the Debtor. The Consent Orders directly address the 

maintenance and use of fraudulently obtained funds of the Debtor, including funds in the KeyBank 

Account, held within various segregated portfolios (the “Consent Order Accounts”). Among other 

 

2

 Reference is made hereinafter to the Declaration of Joseph Davina, the Vice President of AIG Captive 

Solutions, a division of AIG (“Davina Decl.”), attached hereto as Exhibit A, and the Declaration of Adam J. Kaiser, 

co-counsel to Lexington (“Kaiser Decl.”), attached hereto as Exhibit B, filed in support of Plaintiff’s Motion for a 

Temporary Restraining Order and Preliminary Injunction in the Kentucky Litigation. 

3

 Attached hereto as Exhibit C is a true and correct copy of the Agreed Order [KY Dkt. No. 16] and Order 

Following Telephonic Hearing [KY Dkt. No. 17] (together, the “May Consent Order”). Attached as Exhibit D is a 

true and correct copy of the Consent Order to maintain the Status Quo [KY Dkt. No. 62] (“October Consent Order”). 

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things, to ensure that the defrauded policyholders are returned their money, the Consent Orders 

provide (in paragraph 5 of each order) that the Debtor “shall not transfer, diminish or dissipate” funds 

in the Consent Order Accounts “other than to adjust, pay or settle claims made by policyholders and 

certificate holders in the normal course.” May Consent Order at ¶ 5. 

5. Pursuant to the Consent Orders, the Debtor continued administering claims through 

its third-party administrator (“TPA”), Health Special Risk, Inc. (“HSRI”). The program ran smoothly 

from September through sometime in December 2020, as the payment of claims filed against the 

counterfeit policies were paid from the premiums collected by the fraudsters and housed at the 

KeyBank Account. However, in November 2020, two defendants in the Kentucky Litigation, 

Gagliardi Insurance Services, Inc. (“Gagliardi”) and Goldenstar Specialty Insurance, LLC 

(“Goldenstar Specialty”), filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for 

the Northern District of California, case nos. 20-51629 and 20-51659, respectively. Shortly thereafter, 

HSRI stopped administering claims, and payments ceased. In other words, although the Consent 

Orders required otherwise, the administration and payment of claims stopped after HSRI’s resignation 

and the Goldenstar and Gagliardi bankruptcy filings. 

6. Once claims were ignored, the purchasers of the counterfeit policies took little time in 

filing a class action suit against the Debtor and its co-defendants in the United States District Court, 

Central District of California, Southern Division on January 28, 2021 styled Del Obispo Youth 

Baseball, Inc. v. The Ambassador Group LLC et al, case no. 21-00199 (JVS) (the “Class Action”). 

7. In January and February 2021, in order to effectuate the Consent Orders in light of the 

departure of HSRI, Gagliardi and Goldenstar that had been administering and paying claims, the 

Debtor’s U.S. counsel was negotiating with plaintiffs in the Kentucky Litigation to enter into another 

consent order in which (i) the District Court in Kentucky would appoint a special master who would 

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be empowered to hire a new TPA and pay claims and (ii) the approximately $2.4 million in the 

segregated KeyBank Account would be controlled by the special master under the supervision of the 

Kentucky District Court. After agreeing on basic terms and who the special master would be, 

plaintiffs were exchanging drafts of the new consent order with the Debtor—until the Debtor had a 

change of heart. Instead of finalizing the new consent order, which would have placed the $2.4 

million from the KeyBank Account under court supervision, Performance placed itself into voluntary 

liquidation (the “Cayman Proceeding”). That change of heart occurred shortly after the Kentucky 

Court denied Performance’s motion to dismiss for lack of personal jurisdiction. Opinion and Order 

[KY Dkt. No. 103] (“MTD Order”), attached hereto as Exhibit E. 

8. By initiating the Cayman Proceeding and petitioning for Chapter 15 bankruptcy (the 

“Chapter 15 Case”), the Debtor sought to further its fraud by taking advantage of the bankruptcy 

process with the ultimate goal of (a) thwarting (indeed nullifying) the Consent Orders and thereby 

harming the defrauded policyholders by taking control over funds that by dint of the Consent Orders 

were to be to pay claims, (b) avoiding any new deal that would put the $2.4 million held in the 

KeyBank Account (and other segregated cell funds) under the supervision of a U.S. court for the 

policyholders’ benefit, and (c) taking control for itself over the segregated cell money in the KeyBank 

Account and presumably the other Consent Order Accounts to the harm of the policyholders. 

9. Anticipating a contested recognition hearing after filing the Chapter 15 Case, the 

Foreign Representatives for Performance negotiated with Lexington and the other Kentucky Action 

plaintiffs and stipulated that the Consent Orders (which have the goal of ensuring that defrauded 

policyholders are repaid) would remain in place in the Chapter 15 Case and the status quo would be 

upheld until this Court determines otherwise. Importantly, as set forth more fully below, the Order 

Granting Recognition of Foreign Main Proceeding Pursuant to §§ 1515 and 1517 of the Bankruptcy 

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Code and Granting Related Relief [ECF No. 17] (the “Recognition Order”) specifically contemplates

that the fraudulently obtained funds of the Debtor located in various segregated cells, including the 

KeyBank Account, will remain undisturbed until the Foreign Representatives, after notice and 

hearing, have sought and obtained consent of this Court to do anything else with that money. In 

seeking to unilaterally obtain funds held in the KeyBank Account before filing the Motion to Compel, 

the Foreign Representatives violated the Recognition Order and the procedures set forth therein. 

10. For all of these reasons, the Motion to Compel should be denied. The Bankruptcy 

Code, along with a myriad of other federal and state laws, specifically authorizes this Court to enforce 

the Consent Orders, to issue additional appropriate injunctive relief, including the implementation of 

a constructive trust, and to protect the defrauded policyholders’ funds from being misused by the 

Foreign Representatives for the benefit the Debtor and its estate rather than to pay their claims. 

STATEMENT OF FACTS

A. AIG’s Business Relationship with Debtor – “Captive Reinsurance”

11. AIG, Inc. is a publicly owned holding company. Its numerous subsidiaries and 

operating companies provide a diverse range of property and casualty insurance, life insurance, 

retirement products, mortgage insurance, and related financial services to its customers and clients. 

Davina Decl. at ¶ 1. 

12. Lexington is an indirect, wholly owned subsidiary of AIG, Inc. that has operated as 

an excess and surplus line insurance company for more than 50 years. Lexington is one of the largest 

excess and surplus lines carriers in the United States. Complaint at ¶¶ 24-25. 

13. Lexington had (through AIG) an existing business relationship with The 

Ambassador Group LLC d/b/a Ambassador Captive Solutions (“Ambassador”) and one of 

Ambassador’s principals, Brandon White (“White”) who were the architects of the fraudulent 

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scheme. The fraud relates to an area of insurance known as “captive reinsurance.” Captive 

reinsurance programs are complex multi-party arrangements that require specialized expertise and 

significant underwriting capacity. Performance served as the captive reinsurer, established and 

located in the Cayman Islands, and Goldenstar Holdings, served as a segregated cell of 

Performance, in which the KeyBank Account and other accounts are held. Davina Decl. at ¶ 15. 

14. In the type of captive reinsurance program at issue here, an insurance broker or 

other company (the “Broker/Owner”) forms and owns a captive reinsurance company (the 

“Captive”). The Captive is ultimately responsible for paying some or all of the losses on policies 

sold by the Broker/Owner. Davina Decl. at ¶ 4. 

15. Because Captives are not licensed direct insurers, the Broker/Owner must engage 

a commercial insurer (such as Lexington) (an “Issuing Carrier”) to issue the insurance policies to 

be sold and then reinsure such policies to the Captive. The apportionment of risk between the 

Issuing Carrier and the Captive is typically documented in a reinsurance agreement through which 

the Captive (as the reinsurer) agrees to reimburse the Issuing Carrier for some or all of the losses 

incurred under the policies. Davina Decl. at ¶¶ 5-6. 

16. These complex transactions are often facilitated by a “Captive Intermediary,” an 

entity that assists a Broker/Owner in developing an actuarial model and business plan, forming the 

Captive, and—most importantly—identifying an Issuing Carrier to issue the policies to be sold by 

the Broker/Owner and reinsured to the Captive. Davina Decl. at ¶ 8. Ambassador is such a Captive 

Intermediary, founded by White in 2011 in Louisville, Kentucky. Complaint at ¶ 33. 

B. Ambassador Solicits Lexington’s Participation in the Gagliardi Fraud 

17. In early 2018, White contacted AIG to see if AIG would be interested in working 

with Ambassador on captive reinsurance programs. He explained that QBE Insurance Group, Ltd. 

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(“QBE”) was the carrier for most captive arrangements in Ambassador’s portfolio, but that 

Ambassador was looking for a change, and was interested in moving its entire captive portfolio to 

AIG. Davina Decl. at ¶ 12. 

18. In June 2018, AIG executives met in Louisville with White and others at 

Ambassador to discuss such opportunities. Following that meeting, an AIG-affiliated insurer (not 

Lexington) agreed to act as the Issuing Carrier for two different group captive programs in 

Ambassador’s portfolio. Throughout 2018 and 2019, AIG regularly communicated with White and 

his Ambassador colleagues regarding these two group captive programs, including two additional 

in-person meetings with White. Davina Decl. at ¶¶ 13-14. 

19. In August 2018, White solicited AIG to act as the Issuing Carrier for a different 

captive program in Ambassador’s portfolio—a captive reinsurance program involving policies that 

would be sold by a broker, Gagliardi Insurance Services, Inc. (“Gagliardi”), which served as the 

insurance broker in the fraudulent scheme (the “Gagliardi Insurance Program”). White and 

Ambassador explained that the Gagliardi Insurance Program would provide accident and health 

coverage for various youth and professional sports teams and leagues. As part of the Gagliardi 

Insurance Program, Ambassador created Goldenstar Holdings, a segregated portfolio of the 

Debtor, ultimately owned by Gagliardi Insurance and based in the Cayman Islands, to serve as a 

captive reinsurer. Goldenstar Holdings is owned by Gagliardi Insurance, so Gagliardi Insurance is 

the Broker/Owner, and Goldenstar Holdings is the Captive. Davina Decl. at ¶ 15. 

20. The Gagliardi Insurance Program contemplated the execution of a Managing 

General Agent Agreement (“MGA Agreement”) or Program Administration Agreement (“PA 

Agreement”), under which Gagliardi Insurance would have the ability to issue policies in the name 

of the AIG-affiliated insurer serving as the Issuing Carrier. Davina Decl. at ¶ 17. 

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21. AIG determined that it was not interested in the Gagliardi Insurance Program, and, 

in October 2018, AIG advised White that it declined to participate. White asked AIG several more 

times over the following months to revisit the opportunity. Each time, the answer was the same: 

AIG declined the program. Davina Decl. at ¶¶ 22-23. 

C. Ambassador and White Orchestrate the Fraud and Lie to Cover it Up

22. Undeterred by AIG’s repeated refusal to be involved in the Gagliardi Insurance 

Program, White, Ambassador, and Goldenstar (and maybe others) involved themselves in a 

scheme to forge documents and issue counterfeit policies in Lexington’s name as if AIG had 

accepted and not declined the program. Complaint at ¶¶ 181-191.

23. White repeatedly lied to AIG to cover up the fraud scheme. In December 2018, for 

example, HSRI (the TPA) emailed Davina requesting to move forward with the TPA agreement 

for the Gagliardi Insurance Program, believing that the Gagliardi Insurance Program went into 

effect with Lexington as the Issuing Carrier on July 1, 2018. Davina Decl. at ¶ 26, Ex. 1. Davina 

immediately questioned White about the email because AIG’s affiliated companies had repeatedly 

declined to serve as the program’s Issuing Carrier. Id. at ¶ 27, Ex. 1. White deliberately misled 

Davina, stating that HSRI’s email was just a miscommunication “on the client side,” and he asked 

Davina not to call HSRI. Id. at ¶ 28, Ex. 1. In fact, however, HSRI contacted Davina because 

White misled HSRI into believing that Lexington was the Issuing Carrier. 

24. A week later, White fabricated an email purporting to be from Davina’s AIG email 

account to White and another Ambassador principal, Darin Smith. Davina Decl. at ¶ 29. In the 

fabricated email, Davina appeared to grant “conditional approval” on AIG’s behalf for HSRI to 

manage claims until AIG formally approved HSRI. Id. at ¶ 30, Ex. 2. White sent the fake email to 

HSRI conveying what appeared to be AIG’s green light for HSRI to proceed as the TPA; this was 

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part of White’s ruse to mislead HSRI that Lexington was the Issuing Carrier. See id. HSRI 

(believing the email to be genuine) forwarded the fabricated email to Davina, who confronted 

White and Smith about it. Id. at ¶ 31, Ex. 2. Smith denied any knowledge of the fabricated email 

and vowed to get to the bottom of it. Id. 

25. In January 2019, White met Davina at AIG’s office in New York to discuss, among 

other things, the two group captive arrangements for which another AIG company (not Lexington) 

was acting as the Issuing Carrier. Davina Decl. at ¶ 32. During that meeting, Davina again 

inquired about the fabricated email purportedly sent from his email account. Id. White assured 

Davina that no one from Ambassador was involved in the fabrication and that Ambassador and 

would never engage in such conduct. Id. That was a lie; Ambassador created the fake email to 

trick HSRI into believing that Lexington was the Issuing Carrier and that Lexington had agreed to 

have HSRI serve as the TPA. 

26. The deception continued. In February 2019, Goldenstar Holdings’ insurance 

manager, Atlas Insurance Management (“Atlas”), emailed Davina seeking language for Goldenstar 

Holdings’ letter of credit, which ostensibly was to serve as AIG’s collateral for the Gagliardi 

Insurance Program. Davina Decl. at ¶ 33, Ex. 3. Davina asked White why AIG was continuing 

to receive correspondence about the Gagliardi Insurance Program that AIG’s affiliated companies 

declined to underwrite. Id. at ¶ 34, Ex. 3. White misled Davina once more, passing Atlas’ email 

off as a “miscommunication on the clients [sic] part and messaging from the captive.” Id. White 

apologized that AIG kept “getting tagged” with emails concerning the Gagliardi Insurance 

Program. Id. 

27. Also, in February 2019, Helmsman Management Services (“Helmsman”) emailed 

Davina introducing itself as the new TPA for the Gagliardi Insurance Program. Davina Decl. at ¶ 

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35, Ex. 4. When Davina replied to Helmsman that no AIG-affiliated insurance carrier was the 

carrier for the Gagliardi Insurance Program, Helmsman provided Davina with an unsigned draft 

of a facultative reinsurance agreement between Goldenstar Holdings and Lexington. Id. at ¶ 36, 

Ex. 4. Davina forwarded the draft agreement to White to find out what was going on. Id. at ¶ 37, 

Ex. 4. White misled Davina yet again, responding that it was a draft based on a template that AIG 

provided him earlier in the year but that “[t]his is not an agreement with Lexington” and that the 

unsigned agreement was “not in effect, obviously.” Id. (emphasis added). 

D. Lexington Discovers the Forged Reinsurance Agreement; Ambassador’s and 

White’s Lies are Exposed 

28. Ambassador and White went to great lengths to hide their fraud and were successful 

in their deceit—until they got caught. At every turn, White and Ambassador concealed their fraud 

by assuring AIG (in writing, no less) that the policies sold by Gagliardi Insurance had been issued 

by another commercial carrier, and not by Lexington. The fraud was finally exposed when one 

claims administrator sent AIG a copy of one of the transaction documents White had forged (or 

caused to be forged) to purportedly bear Davina’s signature. At that point, the jig was up. 

29. On November 19, 2019, Atlas emailed Davina (copying Ambassador) a “fully 

executed Facultative Reinsurance Agreement” with a signature purporting to be Davina’s on 

Lexington’s behalf dated August 17, 2018 (the “Forged Reinsurance Agreement”). Davina Decl. 

at ¶ 38, Exs. 5, 6. Atlas, apparently believing that Lexington was the Issuing Carrier, requested 

wiring instructions for Lexington’s “commission payment.” Id. at ¶ 40, Ex. 6. The signature on 

the Forged Reinsurance Agreement is not Davina’s. Id. at ¶ 39. 

30. Davina demanded that White explain the forgery of his signature. Davina Decl. ¶ 

41, Ex. 6. Once caught, White and Ambassador admitted that Davina’s signature was forged, 

although they professed to have no knowledge as to who had forged the signature, or why, as they 

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continued to claim that Lexington was not involved with this insurance program. White lied to 

Davina again, apologizing for the “misrepresentation” and assuring Davina that the forged 

contract “did not come from Ambassador in any way.” Id. ¶ 42, Ex. 6 (emphasis added). White, 

claiming that he too was baffled by the forgery, informed Davina that he was “working to track 

down the genesis of [the] document” and promised to “get to the bottom” of it. Id. (emphasis 

added). Notably, White did not at that time claim that Davina had signed the Forged Reinsurance 

Agreement or that it was an otherwise legitimate document. See id. at Ex. 6. To the contrary, White 

fessed up that it was a forgery, claimed ignorance of the document’s origin, and vowed to unearth 

the truth. 

E. Lexington Discovers the Counterfeit Insurance Policies Bearing the 

Lexington Mark 

31. After discovering the Forged Reinsurance Agreement, Lexington began 

investigating whether anyone was using the Forged Reinsurance Agreement to support an actual 

captive reinsurance program. Complaint at ¶ 59. The details of the investigation are set forth in the 

Kaiser Declaration submitted as Exhibit B herewith. Among other things, Lexington (through 

counsel) sent letters to every potential participant in the Gagliardi Insurance Fraud seeking 

documents and an opportunity to discuss the facts. Notably, Gagliardi Insurance refused to discuss 

the matter with Lexington. 

32. In connection with that investigation, on February 7, 2020, Ambassador (through 

counsel) claimed, among other things, that White witnessed Davina sign the Forged Reinsurance 

Agreement on May 9, 2019 and backdate it to August 17, 2018. Kaiser Decl. at ¶ 10, Ex. 11. This 

claim, of course, is utterly inconsistent with White’s numerous admissions made in February and 

December of 2019 that: (1) he was unaware of “the genesis of this document,” (2) the agreement 

“was not in effect, obviously,” (3) the agreement was a “misrepresentation,” and (4) the agreement 

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“did not come from Ambassador in any way.” See Davina Decl. at Exs. 4, 6. Indeed, when 

confronted with both the signed and unsigned Forged Reinsurance Agreement, White was adamant 

that he knew nothing about either of them (e.g., “We are working to track down the genesis of this 

document. I can assure you that it did not come from Ambassador in any way.” (Davina Decl. ¶ 

42, Ex. 6)). Yet, after counsel became involved, White suddenly claimed to recall that Davina 

signed the agreement after all. This about-face was remarkable, but ultimately pointless: White 

and Ambassador had admitted their brazen fraud scheme, and their flimsy effort to backtrack on 

their admissions just exacerbated their lies. 

33. In any event, on March 3, 2020, Ambassador (through counsel) provided copies of 

11 accident and health insurance policies that Lexington purportedly issued in connection with the 

Gagliardi Insurance Program (the “Counterfeit Insurance Policies”). Kaiser Decl. at ¶ 16. Each of 

the Counterfeit Insurance Policies bears the Lexington Mark. Complaint at Exs. I-S. For nine of 

the 11 Counterfeit Insurance Policies, Gagliardi Insurance is listed as the policyholder 

(presumably, Gagliardi Insurance would then issue certificates of insurance out of those policies 

to sports teams and leagues insuring accident and health risks (the “Gagliardi Counterfeit 

Certificates”)). Complaint at ¶ 70. The other two Counterfeit Insurance Policies were issued to 

“Pony Baseball and Softball, Inc.” (which supports over 500 youth sports teams) and “NYASA, 

Inc. dba” (a New York sports federation) as policyholders. Id. at ¶ 71. All of these sports teams 

and leagues were misled into believing that they are insured by Lexington when in fact they are 

not. Id. at ¶ 72. Lexington never issued these policies—they are outright counterfeits. 

34. Numerous claims (totaling approximately $1,000,000) were made on the 

Counterfeit Insurance Policies, and while Goldenstar Holdings paid for some of those claims, 

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many more claimants remain unpaid. Complaint at ¶ 83.4 Every insured was under the impression 

that, if a loss occurred, a company affiliated with AIG would be there to pay the claim. In fact, 

however, every policy at issue was a counterfeit, and claims would be paid only if the fraudsters 

decided to pay them. Davina Decl. ¶¶ 43-44; Complaint at ¶ 2. These policyholders were clearly 

defrauded—they paid premiums for insurance that they believed was being offered by Lexington 

but received counterfeit policies instead. 

F. Lexington Commences the Kentucky Litigation 

35. On May 11, 2020, Lexington filed the Complaint in the Kentucky District Court 

against the Debtor, Ambassador, White, Gagliardi, Goldenstar Specialty, Goldenstar Holdings, 

and Smart Insure (collectively, “Defendants”). The Complaint exposed the Debtor’s fraud and set 

forth claims against all Defendants including (i) Counterfeiting and Trademark Infringement, (ii) 

Indirect Trademark Counterfeiting and Infringement, (iii) Unfair Competition and False 

Designation of Origin, (iv) Misappropriation of Name, (v) State Law Unfair Competition under 

various state statutes; (vi) Fraud; (vii) Negligence Per Se; and Declaratory Relief. See Complaint 

at ¶¶ 105–215. The Kentucky District Court granted Lexington’s application, on the consent of the 

Defendants (including the Debtor), for a TRO filed at the inception of the case seeking to freeze 

the assets in the segregated cells, (including approximately $2.4 million held in the KeyBank 

Account that is made up entirely of premium money collected by the Debtor from purchasers of 

counterfeit policies) such that the funds in the cells would be used solely to administer and pay 

claims of the defrauded. 

36. Subsequently, on May 14, 2020, the May Consent Order was entered in the 

Kentucky Litigation, which provides, among other things: 

 

4

 This claim amount is “as of” the date the Complaint was filed. It has increased significantly since then. 

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Defendants represent and warrant that more than $6 million in premiums were 

collected by Goldenstar Holdings Company SP (“Goldenstar”) in connection with 

the Gagliardi Insurance Program and there is now more than $3 million being held 

in escrow (the “Escrow”) to cover any potential claims made in connection with the 

Gagliardi Insurance Program and that, except as necessary to pay claims in the 

ordinary course with respect to the Gagliardi Insurance Program, the Escrow will 

remain in place. 

May Consent Order at Pages 2-3. Recognizing the imminent risk of dissipation of the funds of the 

defrauded policyholders, paragraph 5 of the May Consent Order provides: 

Defendants, their agents, employees, officers, attorneys, successors, assigns, 

affiliates, and all persons in privity or in active concert or participation with any of 

them, shall not transfer, diminish or dissipate the Escrow or other monies received 

from the sale of any insurance policies bearing the Lexington Mark (as those terms 

are defined in the Complaint) other than to adjust, pay or settle claims made by 

policyholders and certificated holders in the Gagliardi Insurance Program in the 

normal course. Defendants shall provide sufficient documentation concerning the 

amount and location (e.g., depository institution) of the funds in the Escrow[.] 

Id. at ¶ 5.5

37. The Kentucky District Court also granted leave to State National Insurance 

Company, Inc. to intervene in the Kentucky Litigation because it too was a victim of the 

Defendants’ fraudulent counterfeit insurance scheme. See KY Dkt. No. 43. 

38. Pursuant to the May Consent Order, the Debtor continued administering claims 

through its TPA. On September 22, 2020, counsel to Goldenstar Holdings reached out to 

Lexington’s counsel to convey information about the KeyBank Account pursuant to the anticipated 

Consent Order. Attached hereto as Exhibit F is a true and correct copy of the letter from Goldstar 

Holdings’ counsel, including a copy of the KeyBank Account statement forwarded to Lexington 

confirming a balance of $2,488,176.23 in the name of Goldenstar Holdings. Notably, Goldenstar 

Holdings reassured Lexington that every penny of the KeyBank Account funds would be 

 

5

 After the entry of the Consent Orders, AIG learned that, in addition to the accident and health policies and 

certificates, the fraudsters issued as part of the Goldenstar/Gagliardi fraud thousands of counterfeit general liability 

certificates bearing the mark of Lexington. 

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maintained for the purposes of paying claims of the defrauded policyholders upon resolution of 

the Kentucky Litigation: “The current balance in the Goldenstar Holdings Company is 

$2,488,176.23. It is Goldenstar Holdings Company’s intention to maintain this balance until this 

matter can be resolved.” Id. 

39. On October 13, 2020, the Kentucky District Court entered the October Consent 

Order to provide intervening plaintiffs State National Insurance Company, Inc. and National 

Specialty Insurance Company (collectively, “State National”) with protections for State National 

that are substantially similar to those afforded Lexington in the May Consent Order. 

40. After both Consent Orders were entered, the Debtor continued to administer claims 

through its TPA, and the program ran smoothly until Gagliardi and Goldenstar Specialty filed 

petitions for chapter 7 bankruptcy on November 13th and 20th respectfully (the “Chapter 7 

Cases”). As a result, HSRI ceased administering claims and payments to policyholders ceased. 

G. Policyholders Initiate Class Action Against the Debtor; Defendants’ Motion 

to Dismiss Kentucky Litigation Denied 

41. Subsequently, purported representatives of the defrauded policyholders initiated 

the Class Action on January 28, 2021 against all defendants in the Kentucky Litigation seeking 

damages and equitable relief under the Racketeer Influenced and Corrupt Organizations Act, and 

various state and common law claims [CA Dkt. No. 1] (the “Class Action Complaint”). The Class 

Action Complaint contains causes of action arising from (i) Racketeer Influenced and Corrupt 

Organizations Act violations; (ii) Conversion; Unjust Enrichment; (iii) Unfair Competition 

pursuant to Cal. Bus. & Prof. Code; and (iv) Negligence. Class Action Complaint at ¶¶ 71-109. 

42. After agreeing to the Consent Orders and filing answers to both Lexington’s 

Complaint and State National’s Complaint, the Debtor filed a Motion to Dismiss arguing that the 

Kentucky District Court lacked personal jurisdiction. On February 16, 2021, the Kentucky District 

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Court issued the MTD Order, finding that it has personal jurisdiction over Performance. See MTD 

Order. Notably, the Kentucky District Court commented: “The Plaintiffs muster a persuasive 

argument that Performance’s alleged Kentucky connections, involving co-defendant and agent 

Brandon White, show that Performance took advantage of the Commonwealth’s laws and the 

benefits of doing business here. If true, that would suffice to establish the Court’s jurisdiction over 

Performance.” See MTD Order at 2. 

H. The Chapter 15 Case 

43. Seeking to insulate the KeyBank Account from the reach of the policyholders, on 

March 19, 2021 (the “Petition Date”), the Debtor commenced the Chapter 15 Case, only one month 

after the issuance of the MTD Order and approximately five months after entry of the October 

Consent Order. 

44. On April 15, 2021, the Court entered the Recognition Order. Before entry of the 

Recognition Order, the Foreign Representatives along with certain parties in interest, including 

Lexington, stipulated that in light of the Consent Orders entered by the Kentucky District Court to 

ensure the status quo and protection of the defrauded policyholders, the Recognition Order should 

contain the following carveout: “[Foreign Representatives] shall not transfer, diminish or 

dissipate” funds in the Consent Order Accounts “other than to adjust, pay or settle claims made by 

policyholders and certificate holders in the normal course.” Recognition Order at ¶ P. 

Furthermore, the Recognition Order requires that: 

For Consent Order Accounts that are located in the territorial jurisdiction of the 

United States of America, the Foreign Representatives shall not take any action that 

is inconsistent with the Kentucky Consent Orders in regard to such Consent Order 

Accounts, unless the Foreign Representatives have sought and received, after notice 

and hearing, either consent of this Court to take such action or an adjudication from 

this Court that the Foreign Representatives may take such action notwithstanding 

the existence of the Kentucky Consent Orders. 

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Id. at ¶ 17.A. 

45. Counsel to the Foreign Representatives first reached out to KeyBank on March 23, 

2021, asserting rights to funds held in control of Goldenstar Holdings and the KeyBank Account 

ending in XXX1886. See Motion to Compel at ¶ 7. Upon information and belief, the KeyBank 

Account to which the Foreign Representatives seek control over is the same account that counsel 

to Goldenstar Holdings acknowledged would be preserved until the conclusion of the Kentucky 

Litigation to pay claims of the defrauded policyholders. See Exhibits C and F. In seeking to gain 

control over the funds located in a Consent Order Account without first obtaining consent of this 

Court, the Foreign Representatives violated the procedures expressly set forth in the Recognition 

Order. See Recognition Order at ¶ 17.A. 

46. According to the Debtor, counsel for the Foreign Representatives contacted 

KeyBank on not less than three occasions following entry of the Recognition Order, for the sole 

purposes of gaining access to the funds in the KeyBank Account. See Motion to Compel at ¶¶ 6-

11. The Foreign Representatives also issued a subpoena to KeyBank compelling the production 

of documents for a number of segregated portfolio companies affiliated with the Debtor along with 

all monthly statements and any other statements held by Goldenstar from January 1, 2019 to 

present. Id. at 12. The Foreign Representatives’ unilateral turnover efforts were unsuccessful, 

despite multiple attempts to gain access to the KeyBank Account.6

47. On June 25, 2021, the Foreign Representatives filed the Motion to Compel seeking 

an order directing KeyBank to turnover funds. However, because each and every dollar held within 

the KeyBank Account was obtained by the Debtor through the fraudulent Gagliardi Insurance 

 

6

 Based upon the facts laid out by Debtor in the Motion to Compel, Lexington may file a motion to hold Debtor in 

contempt of the Recognition Order, and all rights thereto are reserved. 

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Program, the funds are not the rightful property of the Debtor. Therefore, the Motion to Compel 

should be denied, and the KeyBank Account funds should be set aside for the sole benefit of 

defrauded policyholders, as set forth in the Consent Order. 

DISCUSSION 

I. Fraudulently Obtained Goldenstar Account Funds Do Not Constitute 

Property Of The Estate 

48. Section 541(a)(1) broadly defines property of the estate to include “all legal or 

equitable interests of the debtor in property as of the commencement of the case” (11 U.S.C. § 

541(a)(1)). However, it is settled as a general rule that property obtained by the fraudulent acts of 

a debtor does not properly become part of the assets of a debtor’s estate. Heyman v. Kemp (In re 

Teltronics, Ltd.), 649 F.2d 1236, 1239 (7th Cir. 1981) (“[I]t is settled that property obtained by 

fraud of the bankruptcy is not part of the bankrupt’s estate.”); Bergquist v. Wiese & Cox, Ltd. (In 

re AEFS, Inc.), 51 B.R. 340, 344 (Bankr. D. Minn. 1985). It is also true that, as a general rule, in 

transactions between consumers and a debtor, consumers have been allowed to obtain the return 

of their property based on an argument that they were defrauded into delivering the property to the 

debtor and, therefore, the property never became property of the estate. See Heyman, 649 F.2d at 

1241. A debtor’s interest in property is to be determined by state law. See Dzikowski v. NASD 

Regulation, Inc. (In re Scanlon), 239 F.3d 1195, 1197 (11th Cir. 2001). 

49. The Trustee carries the burden of proof in a motion for turnover of estate 

property. Maggio v. Zeitz, 333 U.S. 56, 64, 68 S. Ct. 401, 92 L. Ed. 476 (1948). The Trustee must 

prove that the subject property constitutes property of the estate and that the defendant is in 

possession of that property. Id. While older case law suggests that the burden of proof is by clear 

and convincing evidence, the correct standard is by a preponderance of the evidence. See e.g., In 

re Santaella, 298 B.R. 793 (Bankr. S.D. Fla. 2002). 

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50. While the Bankruptcy Code does not prohibit the court from authorizing the foreign 

representative to employ turnover powers available under §§ 542 and 543, access to turnover 

powers under § 1521(a)(7) is conditioned upon sufficient protections being provided to creditors 

and other interested parties under § 1522, which requires a balancing of the respective parties’ 

interests. See 11 U.S.C. § 1522(a) (“The court may grant relief available under section [] 1521 . . 

. only if the interests of creditors and other entities, including the debtor, are sufficiently 

protected.”); SNP Boat Serv. S.A. v. Hotel Le St. James, 483 B.R. 776, 784 (S.D. Fla. 2012); In re 

Qimonda AG Bankr. Litig., 433 B.R. 547, 556-58 (E.D. Va. 2010); CT Investment Mgmt. Co., LLC 

v. Cozumel Caribe, S.A. de C.V., 482 B.R. 96, 108 (Bankr. S.D.N.Y. 2012). 

51. The Model Law on Cross-Border Insolvency of the United Nations Commission on 

International Trade Law, which Chapter 15 was designed to incorporate, contains several 

safeguards designed to ensure the protection of local interests before assets are turned over to the 

foreign representative. Those safeguards include the following: (i) the general statement of the 

principle of protection of local interests (Art. 22 ¶ 1); (ii) that the court should not authorize the 

turnover of assets until it is assured that the local creditors’ interests are protected (Art. 21 ¶ 2); 

and (iii) the court may subject the relief that it grants to conditions it considers appropriate. (Art. 

22 ¶ 2). 

52. To the extent the Foreign Representatives must rely on 11 U.S.C. § 541 for standing 

in the case or right to possession of the funds in the KeyBank Account, they will not be insulated 

from the wrongdoing of the debtor. See Sender v. Simon, 84 F.3d 1299, 1304 (10th Cir.1996). 

Section 541(a) does not expand the property interests of a debtor beyond those held at the moment 

a bankruptcy case is started. In re Thomas, 883 F.2d 991, 995 (11th Cir. 1989). 

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a. Debtor Admitted Through the May Consent Order that the KeyBank 

Account Funds Belong to Policyholders and Other Creditors 

53. When the parties to the Kentucky Litigation (including the Debtor) entered into the 

Consent Orders, the parties were acknowledging that notwithstanding the merits of the claims 

against the Debtor, the funds contained in the Consent Order Accounts, including the KeyBank 

Account, did not rightfully belong to Debtor. Rather, they represented premium dollars paid by 

defrauded policyholders who purchased counterfeit policies. To ensure that the defrauded 

policyholders would have access to funds to pay otherwise legitimate claims on the counterfeit 

AIG policies, the Consent Orders provide (in paragraph 5 of each order) that the Debtor “shall not 

transfer, diminish or dissipate” funds in the Consent Order Accounts “other than to adjust, pay or 

settle claims made by policyholders and certificate holders in the normal course.” Consent Orders 

at ¶ 5 (emphasis added); see also Exhibit F (“The current balance in the Goldenstar Holdings 

Company is $2,488,176.23. It is Goldenstar Holdings Company’s intention to maintain this 

balance until this matter can be resolved.”). Once claims of policyholders were paid, and a reserve 

was established to pay future claims, any monies left over could be used to compensate AIG, which 

has substantial Lanham Act claims (among others) against all Defendants, including Performance. 

54. Put more simply, the Consent Orders were entered precisely to ensure that the 

policyholders would receive distributions on funds contained in the Consent Order Accounts (for 

otherwise legitimate claims) in an expedited manner. But now, the Foreign Representatives seek 

to cast the defrauded policyholders into the broad pool of the Debtor’s general unsecured creditors. 

Indeed, the Motion to Compel would have this Court believe that the funds contained in the 

KeyBank Account rightfully belong to the Debtor. However, case law is clear that the funds held 

in the KeyBank Account must not be treated in the same manner as general unsecured claims or 

judgments against the Debtor. See, e.g., Heyman, 649 F.2d at 1241 (holding that consumers may 

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recoup fraudulently obtained funds held by a receiver, apart from participating as general creditors 

in the bankrupt’s estate, where state statute provides a mechanism for recovery against a fund 

wholly made up of the fruits of the frauds perpetrated against a myriad of victims). The Kentucky 

Consumer Protection Act and a myriad of other state statutes provide for identical protections with 

respect to the distribution of assets to consumer victims of unlawful practices, appointment of a 

receiver, and placing funds into escrow accounts. See, e.g., KRS Ch. 367.210. 

55. Performance expressly agreed to the entry of the Consent Orders. The Consent 

Orders were an admission that the funds do not belong to the Debtor and an acknowledgment that 

the defrauded policyholders must be protected. Notwithstanding the Foreign Representatives 

attempt to reverse course, the Consent Order has been incorporated into the Recognition Order. 

See Recognition Order at ¶¶ P, 17.A. Therefore, appropriate measures must be taken to protect 

the interests of the defrauded policyholders as every dollar in the KeyBank Account was stolen as 

a result of the sale of counterfeit policies—a fraud on both AIG and the policyholders. The Foreign 

Representatives have not met their burden to prove otherwise. Therefore, the Motion to Compel 

should be denied. 

b. A Constructive Trust Should be Applied to the KeyBank Account 

56. If there is any question as to whether the KeyBank Account funds are property of 

the Debtor’s estate (they are not), the Court should impose a constructive trust on the KeyBank 

Account to preserve it for the policyholders and AIG. “A constructive trust generally arises to 

restore property to its rightful owner and to prevent unjust enrichment when it is against equity for 

a person to retain property obtained by fraud or other questionable means.” In re Woolum, 279 

B.R. 865, 869-870 (Bankr. M.D. Fla. 2002). The following must be shown by a claimant to 

establish that a constructive trust is warranted: “(1) a promise, express or implied, (2) transfer of 

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the property and reliance thereon, (3) a confidential relationship and (4) unjust enrichment.” In re 

Schneider, 2006 Bankr. LEXIS 525, *6, 2006 WL 839260, Case No. 05-36703P3 (Bankr. M.D. 

Fla. February 6, 2006) citing Provence v. Palm Beach Taverns, Inc., 676 So. 2d 1022, 1025 (Fla. 

4th DCA 1996). 

57. Constructive trusts are enforced in bankruptcy, albeit with caution. See 

e.g., Wisconsin v. Reese, (In re Kennedy & Cohen, Inc.), 612 F.2d 963 (5th Cir. 1980), cert. 

denied, 449 U.S. 833, 101 S. Ct. 103, 66 L. Ed. 38 (1980); McAllester v. Aldridge, (In re 

Anderson), 30 B.R. 995 (M.D. Tenn. 1983); In re American Intern. Airways, 44 B.R. 143 (Bankr. 

E.D. Pa. 1984); Kagan v. Martin, (In re Tufts Electronics, Inc.), 34 B.R. 455 (Bankr. D. Mass. 

1983); Travelers Insurance Co. v. Angus, 9 B.R. 769 (Bankr. D. Or. 1981). 

58. Importantly, the imposition of a constructive trust means that the property is 

excluded from the bankruptcy estate. Under 11 U.S.C. § 541(d), such property becomes property 

of the estate only to the extent of the debtor’s legal title and not to the extent of any equitable 

interest which the debtor does not hold. Thus, the imposition of a constructive trust limits the 

equitable interest in property that can be passed on to the trustee. Lambert v. Flight Transportation 

Corp., (In re Flight Trans. Corp. Securities Litigation), 730 F.2d 1128, 1136-37 (8th Cir. 

1984), cert. denied sub nom., Reavis McGrath v. Antinore, 469 U.S. 1207, 105 S. Ct. 1169, 84 L. 

Ed. 2d 320 (1985); In re Kennedy & Cohen, Inc., 612 F.2d at 966, (Order of District Court, 

appended to opinion); Cook v. United States Commodity Credit Corp., (In re Earl Roggenbuck 

Farms), 51 B.R. 913 (E.D. Mich. 1985). 

59. As noted above, a constructive trust arises at the time when the events that result in 

the constructive trust occur. See In re General Coffee Corp. 828 F.2d 699 (11th Cir. 1987) (A 

constructive trust arising from fraud was created at the time of the fraud, so that property subject 

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to a constructive trust did not become part of a bankruptcy estate.). Here, the constructive trust 

similarly arose years prior to the Chapter 15 Case when Ambassador and White induced the 

policyholders into believing that they were insured by Lexington by entering into counterfeit 

insurance contracts, when in fact they were not. The Debtor was unjustly enriched by inducing the 

policyholders to pay premiums for counterfeit policies. Indeed, the Debtor represented and 

warranted that more than $6 million in premiums were collected Goldenstar Holdings in 

connection with the Gagliardi Insurance Program and there is now at least $2.4 million remaining 

in the KeyBank Account that was held in escrow specifically to cover any potential claims made 

in connection with the Gagliardi Insurance Program. See May Consent Order at Pages 2-3; see 

also Exhibit F. These funds belong to the victims of the fraud schemes—the policyholders who 

paid premiums for the bogus policies and AIG whose mark was stolen to create the counterfeit 

policies in the first instance. 

60. As a general rule, section 541(d) prevails over the trustee's strong-arm 

powers. Although those powers allow a trustee to assert rights that a debtor itself could not claim 

to property, Congress did not mean to authorize a bankruptcy estate to benefit from property that 

the debtor did not own. Vineyard v. McKenzie, (In the Matter of Quality Holstein Leasing), 752 

F.2d 1009, 1013-1014 (5th Cir. 1985); see also Flight Trans. Corp. at 1136-37. Here, the Debtor 

did not own the premium dollars paid by defrauded policyholders to purchase counterfeit policies. 

That money, to the extent needed to pay otherwise legitimate claims, belongs to the policyholders 

(so they get the benefit of their bargain—insurance) and to AIG, whose mark was stolen to create 

the counterfeit policies in the first instance. By no means is the fruit of this criminal counterfeiting 

scheme the property of the Debtor. 

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61. As the Debtor sought in filing the Chapter 15 Case to insulate the fraudulent funds 

in the KeyBank Account by taking advantage of the bankruptcy process, and ultimately to nullify 

the Consent Orders, the Debtor must not be rewarded by allowing the KeyBank Account to be 

used for the benefit of its estate. 

CONCLUSION 

62. For all of these reasons, the Court should deny the relief requested in the Motion to 

Compel. The KeyBank Account should remain under KeyBank’s control, and the funds in the 

account should continue to be preserved and not be handed over to the Foreign Representatives to 

the detriment of the defrauded policy holders and AIG. 

63. Lexington reserves its rights, to the extent necessary, to assert additional or 

alternative bases for objection. Furthermore, Lexington asserts all of its defenses and objections 

herein as affirmative defenses, as necessary, and reserves all of its defenses and objections to entry 

of an Order compelling turnover of documents. 

WHEREFORE, Lexington respectfully requests that this Court (i) deny the Motion; (ii) 

sustain the Objection; and (iii) grant such other relief as may be just and proper. 

Dated: July 12, 2021 Respectfully submitted, 

Miami, Florida 

By: /s/ John T. Rogerson, III 

John T. Rogerson III 

Florida Bar No. 832839 

ADAMS AND REESE LLP 

john.rogerson@arlaw.com 

dana.tompkins@arlaw.com 

501 Riverside Avenue, Suite 601 

Jacksonville, FL 32202 

Main Telephone: (904) 355-1700 

Direct Dial Telephone: (904) 493-3303 

-andCase 21-12609-AJC Doc 32 Filed 07/12/21 Page 25 of 26
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Leib M. Lerner (pro hac vice) 

ALSTON & BIRD LLP 

CA State Bar No. 227323 

333 S. Hope Street, 16th Fl. 

Los Angeles, CA 90071 

T: (213) 576-1000 

Counsel for Lexington Insurance Company 

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