An audit by insurtech Vesttoo has found problems with the letter of credit (LOC), the high amount of collateral held for deals brokered by the company, according to a new report from Israeli tech media group Calcalist.
As we reported yesterday, initial claims suggest that a significant amount of collateral may have been compromised, either fraudulently or with forged signatures, with the letter of credit (LOC) considered the most likely underlying structure because Vesttoo uses LOC in some transactions. its deal.
Vesttoo’s statement on the matter said the “inconsistencies” found in an initial audit of the issue were “collateral provided by banks” and these LOCs were linked to certain transactions.
The Insurance Insider team has since reported that some of the collateral issues are related to certain IP deals facilitated by Vesttoo, and our sources have confirmed this.
Calcalist said the allegedly forged LOC totaled approximately $4 billion and came from a leading Chinese bank, with Vesttoo working with at least one Chinese bank, the China Construction Bank.
From what we understand, $4 billion seems like a very high number considering Vesttoo is still in a relatively early stage and LOC is not the only form of collateral used for its transactions.
Calcalist also said it had conducted a full review of all letters of credit, but Vesttoo said the audit was still ongoing and therefore could not comment.
Elaborating on its suspicions, Calcalist noted that LOC was allegedly forged as collateral in the Vesttoo-brokered transaction, possibly involving the cooperation of a Chinese bank employee (no evidence provided).
They also say that Vesttoo “also suspects that some of its executives were aware of the possibility of these transactions being completed through the platform using a fake LOC” (again, without providing any evidence, only through the publisher’s sources).
It should be added here, however, that Israeli newspaper Globes also reported on the matter this morning and stated that no Vesttoo employees are currently under suspicion, although Globes did not give any source for this information either.
The question that remains is how this is accomplished in the first place, given all the necessary checks and balances of KYC and securities laws. The second major question is who knows this is happening.
Cedants and brokers tend to monitor collateral, and insurance and reinsurance best practices often see counterparty safety committees in action, whose job it is to assess counterparties, collateral and balance sheet capital, trade and the market for protection integrity.
There are other entities in the chain of such mortgage reinsurance transactions that may be presumed to have knowledge of any defects in the collateral that occurred.
The answer seems to be that in this case, somewhere, something in the compliance chain has broken down. Or, fraud has been committed and the checks and balances somehow evaded, in which case this could become a criminal case.
Aside from how, the next set of questions is all about consequences, as collateral of no value to those dealings and the cedents involved will undoubtedly have knock-on effects in the market.
We must be clear that there is still a lack of clarity as to exactly what happened or what went wrong, so we are only reporting based on the statements of the publishers who released the original news, which are based on their sources.
Yesterday, Vesttoo said it was working closely with clients and customers to provide transparency on the matter and find alternative solutions where required.
We reached out to Vesttoo for comment this morning, but the company declined and said it would issue a statement today.
Hopefully a statement will be released later to provide more clarity to the market.
Read our report yesterday morning for Vesttoo’s initial statement on the matter.
