Under fire Vesttoo is laying off around 150 employees, accounting for 75% of the company’s workforce. Most of the company’s employees are headquartered in Israel.
Calcalist uncovered last month that the allegedly fake letters of credit (LOCs) provided by investors to insurers for reinsurance transactions on the Vesttoo platform are believed to total a sum of around $4 billion. The fraud came to light when one of the LOCs was found to be fake, leading to a comprehensive review of all letters of credit issued by the company.
The Israeli startup released a statement last week admitting that “at a minimum, it appears that Vesttoo’s procedures were circumvented.”
“I am writing to you today with great sorrow, to inform you that we have reached the incredibly difficult decision to part ways with many of our people, across all teams and geographies at Vesttoo, and I would like to share the considerations that led to this very painful choice,” CEO Yaniv Bertele wrote in an email to employees.
“Over the last two weeks we have looked at many different options with a primary purpose in mind: ensuring that Vesttoo weathers this storm in a way that makes rebuilding possible. In spite of this serious crisis, we have never lost faith in the sound foundations of our approach to revolutionizing the reinsurance industry by better connecting the insurance and capital markets by combining AI-powered technology and expertise in data science, insurance risk transfer and finance.
“As we considered our options, we had to recognize two important facts: 1. We do not know how long this process will take, and 2. The amount of runway we have. These two factors led to the unavoidable conclusion that the only way to give the company a fighting chance of survival and getting back to a path of sustainable growth is to keep on a small core of people that represent bare operational necessity. These changes are meant to preserve, and focus on Vesttoo’s core services, our data-driven solution and marketplace, and providing solutions for our affected clients.
“With regards to the investigation, the company is doing all it can to determine how and where the fraudulent LOCs originated. At a minimum, it appears that Vesttoo’s procedures were circumvented by external parties but we are committed to understanding the full picture of what happened. This is why we have engaged an experienced investigations team and external attorneys to advise us throughout this process.”
Clear Blue Insurance Group and Obsidian Insurance Holdings were among the companies which released statements last week aimed at reassuring their clients in the wake of the Vesttoo scandal.
Clear Blue and Vesttoo announced a partnership in August 2022 through which the Israeli startup was set to deploy as much as $1 billion from the capital markets through Clear Blue’s property and casualty programs. Clear Blue confirmed that it is aware of the allegations and that the “letters of credit issued by the China Construction Bank for reinsurance collateral, on behalf of Vesttoo, are fraudulent.” It said it has been using Vesttoo for reinsurance since early 2022.