New York judge freezes Vesttoo’s assets

Crisis-hit startup Vesttoo has had all of its assets in the US temporarily frozen by a New York judge after Aon subsidiary White Rock SAC sought a temporary restraining order against the insurtech.

The restraining order will remain place until tomorrow when a court hearing is slated to begin and freezes all but $1 million in Vesttoo’s accounts.

According to filings in New York’s Southern District court, White Rock’s lawyers are seeking $136.7 million which was paid by the Bermuda-based insurer to Vesttoo, apparently after receiving letters of credit.

Vesttoo has admitted that some letters of credit, purportedly provided by Construction Bank of China, have turned out to be fraudulent, causing a crisis for the company, which has laid off 75% of its staff and much of its senior management.

White Rock is planning to launch arbitration proceedings against Vesttoo in Bermuda but said it feared the Israeli based company’s funds will be “concealed or dissipated” ebefore the hearings without the injunction.

According to the filings, White Rock’s lawyers said they were confident of success in the arbitration, but added: “Those arbitration proceedings will be futile absent injunctive relief from this Court preventing Vesttoo—a privately held foreign company involved in apparent fraud—from concealing or dissipating its assets.

“Considering that this matter involves a large-scale, global fraudulent scheme still under nascent investigation, if the relief requested is not granted by the Court, there is substantial risk that Vesttoo’s assets will be concealed or dissipated, making it near impossible to recover these funds.

“Vesttoo has failed to provide assurance that it will meet its obligations to White Rock under the PSAs or that it would preserve sufficient funds and assets for that purpose.”

Vesttoo, whose Bermuda based collareralised reinsurer has been put into liquidation, was launched as a start-up and said it used artificial intelligence to put together insurers and investors for reinsurance transactions.

It began collaborating with White Rock in 2021 and according to court documents, participated in 21 shareholder’s agreements concerning segregated accounts.

White Rock’s lawyers said in the court documents: “Vesttoo is an Israeli privately-held startup that purported to facilitate capital market transactions for insurance-linked securities investors, whereby those investors would fund reinsurance obligations via letters of credit.

“For most transactions at issue, Aon insurance and reinsurance brokers partnered with certain lender clients who wished to consider investments in start-up companies or other firms with significant intellectual property (“IP”) assets who needed funding to support their growth. Recognizing that the value of IP assets may be fluid, Aon’s client lenders would obtain collateral protection insurance, which was subsequently reinsured by capital arranged by Vesttoo and through a segregated account created by White Rock to facilitate reinsurance transactions agreed to between client insurers and Vesttoo.

“Vesttoo’s role was to contract with investors for investment capital as collateral — in the form of letters of credit — to secure the reinsurance obligations and provide recovery to insurers in the event of default (and subsequent claims under the collateral protection insurance). Accordingly, under this structure, reinsurance coverage for an insurance provider is secured entirely by an ability to draw down on the LOCs presented by Vesttoo. Needless to say, this whole structure is imperilled if the LOCs Vesttoo secured are fraudulent.

“Vesttoo now admits that multiple LOCs presented to White Rock and its clients were fraudulent and on information and belief the fraudulent LOCs could total upwards of $2 billion. This is a clear breach of Vesttoo’s obligations under the PSAs behind the segregated cells, including but not limited to, its obligations to provide acceptable security to collateralize each cell.”

White Rock said that it distributed $36.7 million to Vesttoo after receiving letters of credit from the company which “purported to enable the PSAs’ Segregated Accounts to meet any and all liabilities and any and all collateral requirements”.

When it was revealed that the banks identified in the Letters of Credit provided by Vesttoo were fraudulent and Vesttoo admitted its procedures were circumvented, leading to the apparent fraud, White Rock demanded the return of its funds by July 28.

White Rock  said there had been no response to its demand.