Eh, this really isn't a fraud situation, it's more like pushing the boundaries of insurance law.
To begin with, typically government entities require sureties to hit a minimum rating from AM Best or a similar rating agency. An AM Best rating is comprised of two parts, a letter grade and a number grade. The letter grade will be A+/A/A-/B+ etc. It represents the sureties general credit worthiness and their overall financial outlook. The number grade will be I/II/III/IV etc. It represents the sureties general size and surplus, the larger the Roman numeral the larger the surplus. In my experience most governments require AT LEAST an A- VII surety, but that could go higher if the bond obligation is larger.
There's been no discussion of the court requiring a minimum rating, which I find odd.
Apparently the main issue is the surety isn't authorized (licensed) in New York. This is both odd and not odd. It's not odd because insurance companies ARE allowed to do business in states in which they're not licensed. It's called the nonadmitted/surplus lines market. In most states if you can't find insurance through an admitted carrier (i.e., you've got three denials) you're free to shop the surplus lines market. Surplus lines carriers tend to be more expensive than admitted insurers. What makes this odd is that surety is NOT generally allowed on a surplus lines basis, especially by government entities. The only time I've seen nonadmitted bonds accepted are on federal obligations where the surety doesn't have to be licensed in the state because it's a federal job and the surety is on the list of approved federal sureties.
The quotes I've seen about New York needing to verify that the bond was collateralized properly are wrong. The obligee has no right to verify the collateralization of the bond. The surety stands in the place of the applicant and owes the face value of the bond without regard to the quality of the collateral.
New York claims that their laws prohibit a single bond obligation is excess of 10% of surplus. The bond company states that this doesn't matter since they're a nonadmitted carrier not subject to New York regulation. The bond company is right, but New York still could reject the bond for being nonadmitted. Also, I'd be interested to know where the bond company is domiciled as THAT state may take umbrage with a bond of this size.
New Yorks questions about short term cash are also off point. The bond secures an obligation on appeal. The appeal is scheduled for much later in the year. Instant cash on hand is a red herring if the surety has months to liquidate other investments if necessary. Cash on hand is only relevant if there is some way for the appellant to default on the obligation before the appeal is heard. I'm not sure what could transpire to make the bond immediately callable.