Crisis-hit Vesttoo in talks with investors to replace fraudulent collateral

Troubled insurtech Vesttoo is in talks with potential investors to replace collateral put in jeopardy after the company accepted fraudulent letters of credit for an undisclosed number of transactions.

Vesttoo, which is based in Israel but has operations in Bermuda, also confirmed it had lost a significant number of senior executives but had a core team of more than 50 people still working for the company.

Vesttoo retained a third-party law firm to conduct an audit of its operations after it emerged that investors had presented fraudulent letters of credit as collateral for insurance transactions.

It maintained it had conducted standard know your customer procedures on all parties.

In a statement yesterday, Vesttoo said: “The company continues its rigorous external investigation into the circumstances surrounding the suspected fraud of Letters of Credit (LOCs) used as collateral in its transactions. The company is fully cooperating with all parties investigating the matter.

“The company can confirm that standard KYC (“Know Your Customer”) was conducted on all parties internally as well as by external organizations.

“Vesttoo is committed to working with alternative investors and brokers to ascertain alternative collateral for our clients. We are in active discussions with potential investors for this purpose.”

It added; “While the company has lost a significant amount of senior executives, it retains a very experienced and committed core team of more than 50 people who are focused on working with the markets to resolve these issues and is actively corresponding with the various regulatory bodies worldwide regarding the situation, as well as harnessing our technological suite and platform to find potential solutions.

“Vesttoo and its board of directors confirm once again that the company will meet all of its commitments to suppliers and consultants.”

The statement came as the fallout from the controversy continues to spread, with fears growing that it will cause capacity problems for the broader insurance linked securities sector and the captive insurance market.

Vesttoo’s financial plans have been impacted, with a pause on its $200 million funding round and layoffs affecting 75% of its staff, including CEO Yaniv Bertele and chief financial engineer Alon Lifshitz (pictured) who have been placed on paid leave.

However, it asserted that “there are no plans to liquidate the company”.

The situation has drawn legal repercussions, with some clients and counterparties initiating or considering legal action against Aon, a major insurance broker linked to the fraudulent LOCs.

The Bermuda Monetary Authority has said it is monitoring the situation.

Bermuda-based chief commercial officer Julia Henderson resigned shortly after the scandal broke. Industry sources said she and other hires from the conventional insurance industry were concerned about reputational damage.

Palomar Holdings, another entity with ties to Vesttoo, maintains that its exposure is “limited to a single counterparty and is immaterial”. Its CEO Mac Armstrong said: “We closely manage the compliance oversight, reinsurance and collateral of our seven fronting partners.”… “Our approach has allowed us to quickly assess and limit our counterparty exposure to potentially fraudulent letters of credit and transactions arranged by Vesttoo.”