Vesttoo ended 2022 by obtaining the highly-coveted unicorn status, however, 2023 has been anything but a fairytale, as the Israeli FinTech has found itself mired in the midst of a public fraud scandal.
Staff have been laid off, the CEO has been ousted, and the firm has headed to court to combat Aon’s White Rock Insurance SAC vehicle.
But while Vesttoo’s dirty laundry continues to be aired in the public domain, here is a detailed report on how the story has unravelled, so far.
Chaos initially ensued for the InsurTech when Reuters reported that the organisation had been involved in a scandal over a fraudulent letter of credit used as collateral in a transaction with an insurer.
The news, while bad, was swiftly followed by another body blow, as the firm shockingly announced that it will be laying off 75% of its staff in wake of its fraud scandal.
The company also revealed that it would be closing offices Tokyo, Hong Kong and Seoul, as the turmoil reportedly halted the organisation’s plans to raise around $200m in a late stage funding round that would value the firm at near $2bn.
In the days that followed, the expression when it rains it pours has never felt more apt, as Vesttoo announced the exits of CEO Yaniv Bertele and its co-founder and chief financial engineer Alon Lifshitz, as they were placed on paid leave until further investigation.
The news left Bertele little choice but to hit out at the decision in a statement sent to Calcalist, which read: “Unfortunately, parties with their own interests have chosen to take advantage of the temporary crisis that the company has fallen into in order to promote an improper takeover, even at the cost of causing fatal damage to the company and prioritising their personal interests over the interests of the company and its investors.
“This move was accompanied by false and consistent leaks in the media that caused the company heavy and real damage. This is particularly true when considering that an external investigation did not establish any suspicion against any of the members of the company’s management, and for good reason.”
In short fashion, Vesttoo had made moves in their bid to replace Bertele and steady the ship, as less than a week later, Ami Barlev was named as its Interim CEO, while the company also unveiled plans to close a collateralised insurer, amidst the fraud scandal.
Barlev’s appointment came in the midst of the quagmire which had engulfed the company in the public eye, however, the veteran Insurer who specialises in crisis management, and managing companies in complex situations, was not deterred by the task at hand, and sent out a passionate statement.
Speaking for the first time since his appointment, Vesttoo’s Interim CEO Ami Barlev said: “I would like to thank the Board for their confidence in me during this extremely difficult moment – as well as our investors and clients for their patience.
“I accepted this position because we all strongly believe that Vesttoo’s technological suite and platform remain extremely valuable. The need for both alternative capital in the market and diversified investments is clear and robust.
“We are working around the clock in order to provide solutions for our customers and partners around the world, and we will work intensively to restore the company’s activities. We believe in the value that Vesttoo can still provide.
“I am confident that by completing the ongoing audit thoroughly and comprehensively we can overcome this significant challenge and get back to work.”
The organisation then found itself under fire due to a New York court appearance in relation to a lawsuit and temporary restraining order on its assets filed by Aon.
The broker aimed to recover almost $137m of funds that got swapped out of a White Rock cell and replaced with letters of credit that a bank said were invalid.
The news came as Vesttoo announced that it was filing for Chapter 11 bankruptcy protection to give itself more breathing room in its battle against the lawsuit, as well as the time to root out those responsible for the LoC fraud.
Through its own internal investigations, the Israeli InsurTech then managed to discover that the source of its now infamous LOC fraud scandal was external to the company, in a huge win for the battered firm.
The Israeli FinTech confirmed in a statement that no Vesttoo employees were involved in any fraudulent activity.
The comments also stated that the federal court in New York has removed the temporary restraining order that froze the company’s accounts on the 15th of August, to complete a positive day for the firm.
The statement from the firm read: “Vesttoo can confirm that the federal court in New York has removed the temporary restraining order freezing the company’s accounts on the 15th of August, and the Aon White Rock legal case was placed on the court’s suspense docket.
“The courts in Israel have followed suit, removing the temporary restraining order from the company’s accounts in Israel as well. The proceedings moving forward will fall under Chapter 11, which is aimed at providing the company with the ability to restructure the business and rebuild while pursuing legal action.
“We can also confirm that the investigation into the fraudulent LOCs used as collateral in the company’s transactions is in advanced stages, and the company hopes to be able to publish results in the near future.
“What we can already confirm is that the source of the fraud is external to Vesttoo, and no employees of Vesttoo UK, US, Bermuda, Japan, or other jurisdictions outside of Israel are under any suspicion of being involved in the fraudulent activities.
“We can firmly assure that Vesttoo’s remaining core team of professionals is free of any suspicion, and our company continues to operate because of these talented individuals.”
However, The Vesttoo board of directors officially fired CEO Yaniv Bertele and Chief Financial Engineer Alon Lifshitz this weekend, to cap off a torrid month for the beleaguered firm.
The decision came in light of the conclusion of the investigation and the submission of findings by financial and risk advisory Kroll, which looked into the alleged fraud at the high-tech firm.
Update: Markel Bermuda Limited (MBL), a subsidiary of insurer and reinsurer Markel Group, has been appointed to the statutory committee of unsecured creditors in the U.S. Chapter 11 bankruptcy of the Israeli FinTech.
The firm has joined the list of creditors in the Chapter 11 bankruptcy proceedings, and is seeking remedies after two letters of credit (LOC), were found to be fraudulent collateralised reinsurance transactions that it entered into with White Rock.
In the pair of transactions, MBL ceded collateral protection insurance risk to the segregated account, which in turn was required to provide reinsurance collateral to MBL.
The letters of credit, one for $50 million and another for $77.75 million, were provided as collateral backstops in the event claims were made and not paid on the underlying policies for these transactions.
Both letters list an affiliate of Vesttoo as the applicant on behalf of White Rock, with MBL as the designated beneficiary.
This story will continue to be updated with all the latest developments to the Vesttoo story.
Update II:
The Tel Aviv District Court has approved the seize of a total of NIS $30m from the ousted Vesttoo co-founders Yaniv Bertele and Alon Lifshitz.
It is claimed that respondents forged letters of credit from leading banking institutions as well as signatures of bank representatives.
Reportedly, Bertele and Lifshitz even pretended to be a representative of a fictitious bank named “Alex Garcia” which they created, and this in order to hide the acts of fraud and forgery.
In addition, the court was asked to seize $65m from Udi Ginati and Josh Rurka, two former executives at the company, and Tal Ezer, who provided services to the company.
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