The investigation and audit undertaken within beleaguered insurtech Vesttoo by its board, with the help of Kroll, has now filed an initial report, saying that co-founders Yaniv Bertele and Alon Lifshitz were complicit in the fraud, as well as two execs connected to the network that found capital for the company.
The company stated, “The investigation has identified that “pervasive and systemic misconduct” was engaged in by a limited set of Vesttoo executives and other third-parties outside of Vesttoo. This misconduct was shielded from the majority of Vesttoo’s employees, the Board of Directors and the insurance markets.”
Interim CEO Ami Barlev, who was installed after former CEO Yaniv Bertele was removed from the company, said, “The investigation has confirmed that this scheme was confined to the following Vesttoo executives – Yaniv Bertele (former CEO), Alon Lifshitz (former CFE), Udi Ginati (former Senior Director, Capital Markets) and Josh Rurka (former Senior Director, Asian Markets), who acted with external entities such as employees of China Construction Bank and Standard Chartered. While we obviously remain very troubled by the misconduct of those that the Company and markets placed great trust in, we are pleased that the investigation has confirmed that this scheme was confined to a small subset of the Vesttoo leadership team.
“The Company’s technology platform and its core value remain strong and we intend to use it and our deeply experienced insurance professionals to emerge from this process as a trusted partner.”
Ginati and Rurka are both names that have come up repeatedly in conversations about the Vesttoo scandal in recent weeks, as both had been active in Vesttoo efforts to source and onboard investors around the world, including we’re told specifically in China.
One of the most critical findings, is that co-founders Bertele and Lifshitz, as well as Udi Ginati and Josh Rurka, were all directly involved in creating fake documents and forging identities, Vesttoo has stated, as well as covering this up with fake phone numbers that purported to be banks, it seems.
Ginati and Rurka, we are told, were involved in sourcing investor connections for Vesttoo even prior to their employment by the company.
In addition, Vesttoo said that a number of third parties have also been identified as involved in this fraud scheme, including bank employees of China Construction Bank (CCB), the bank with the most invalid letters of credit it appears, as well as other banks and individuals associated with what they now state was Vesttoo’s largest investor, the Hong Kong registered company known as Yu Po Finance Ltd.
Vesttoo stated, “While the company initially stated that the source of the fraud is external, the evidence found demonstrates that the individuals stated above knowingly directed, instigated and engaged in the fraudulent activities themselves. The nature and extent of the conspiracy by and among the various wrongdoers took various forms.”
Also notable today, Yaniv Bertele, the former Vesttoo CEO, had tried to install an activist director to take his place on the Board, but Vesttoo said this move had been blocked and Bertele was subsequently removed from the Board.
There is a large investigation document, which goes into more detail, but a lot of it is focused on issues with letters-of-credit (LOCs) linked to Santander bank, while there is less detail related to the China Construction Bank, which is where most of the lost value is connected it seems.
The reason for this is, it is much harder to trace. While Vesttoo’s investigation undertaken by Kroll can only reach so far, using company files, documents, data and machines.
It seems that the CCB-linked LOC fraud was perhaps much better hidden and harder to trace as a result, although the interim report does connect Ginati directly with a Yu Po employee, who had also been given a title at Vesttoo it seems.
The report states, “The evidence establishes the direct involvement of Bertele and Lifshitz in the creation of fraudulent documents, a process of creation that in many cases can be pieced together from forensic evidence retrieved from the Vesttoo computer systems.
“The evidence also establishes the leading role played by Ginati, in collusion with Yu Po and an employee of CCB, to generate the fraudulent CCB LOCs.”
Those CCB LOCs are far greater in number than the other banks involved and amount to a much more significant amount of capital lost, it appears.
But, it’s key to note that this investigation remains more sided towards the LOC fraud where sufficient evidence of wrongdoing could be found, but this was still sufficient to draw them back to these four people, as being the ones to name in this first report.
There remains some open questions, one over how much bigger the fraud ring actually is and where, if anywhere, its tentacles could reach, inside and perhaps outside of Vesttoo.
A second open question exists, over the leaders, or motivators, as in who were the instigators of the fraud, whether it was a collaborative effort, or whether some parties may have been used to a degree, while still being complicit.
It could take years and criminal investigations for clarity over this to emerge.
But for now, the market will be pleased to at least have some clarity over what has occurred, as well as some details over the rather haphazard way this fraud had been perpetrated, in some cases it now seems.
In total, almost $3.36 billion of standby letters of credit (LOC) are potentially involved, $2.81 billion from China Construction Bank, $362.5m from Standard Chartered Bank and $186m from Santander, the report states.
It also says, “Since 2020, Vesttoo quoted 96 but closed 65 transactions with collateral totaling $3.932 billion, of which 79% ($3.1 billion) were with Yu Po. Approximately $586 million were with the Chinese investor Cheng Yuan Holdings.”
That’s the first time this second Chinese investor has been named.
The report also states that, “Of these LOCs, the banks have confirmed that the vast majority of the LOCs are fraudulent.”
The Vesttoo Board is now trying to salvage something out of the situation, saying it has developed “a commercially reasonable and achievable plan for reforming and conducting its business going-forward, named “Trade Forward.””
Interim CEO Barlev said, “Providing the insurance markets with evidence that the Company has strong financial controls is central to our ability to effectively re-start our business. At that point, we can quickly move to a new business strategy that can take advantage of Vesttoo’s core strengths and respond to the demand for its services in the insurance industry.”
Going on to further explain, “We can guarantee today that the company has embarked on a new path, after a deep identification of the factors that harmed its activity. We will act decisively in order to sue anyone who harmed the company’s activities, its name and its reputation, including China Construction Bank, Yaniv Bertele, Alon Lifshitz, Udi Ginati and Josh Rurka.
“We believe that the company has significant technological, business and economic value, and through a proper process of restructuring, and conducting proper negotiations, we will be able to reach a result to the benefit of all stakeholders. This is the only way forward. We will work day and night in order to direct the company on a new business path. The company operates in a high-quality market, with tremendous business potential, and at the same time brings with it groundbreaking technology and a model of significant economic value to the insurance market.”
Salvaging something may be a challenge, given the report is clear that fraud is alleged to have been practised right from the very top of the company.
Some sample findings from the report include:
- In numerous instances Ginati and others worked with bank employees and the principals of Yu Po, apparently behind the backs of fellow Vesttoo employees, to draft documents and emails that the bank employees then send to the other Vesttoo employees, without any disclosure that those communications were drafted by and coordinated with Ginati.
- In multiple instances Bertele and Lifshitz were directly involved in personally creating fraudulent documents (including Proof of Funds statements and LOCs) that on their face appear to be coming from two banks, and then sending them to White Rock and others.
- This creation of fraudulent documents includes multiple instances where Bertele uses his personal Gmail account to create forged signatures that purport to be the signatures of bank employees on those documents, which then get submitted by Lifshitz to White Rock and others.
- The investigation also uncovered instances where Bertele used multiple constituent parts (e.g., a Word version of a draft LOC, a bank’s letterhead and logo, and a purported signature of a bank executive) to cobble together a single Word document that was converted to PDF apparently showing a final LOC, on bank letterhead and signed by a bank officer, which document is then sent by Lifshitz to the counterparty.
- The evidence also plainly demonstrates that to protect their scheme, Bertele and Lifshitz went so far as to create a wholly fictitious person they held out as an employee of Santander, using this non-existent person to “sign” fraudulent documents and giving this “person” his own telephone number (which was in fact forwarded to Bertele’s cell phone) that Bertele and Lifshitz used to thwart efforts of external parties to verify the existence of certain LOCs.
- Indeed, although numerous and very serious red flags were raised about Yu Po, including in the face of very substantial evidence that the CCB LOCs, which on their face indicated that they were issued out of New York, were in fact issued out of China, no significant action was taken. Reflecting the dedication of a number of other Vesttoo executives, as early as June 2022 (and perhaps earlier), the CFO of Vesttoo believed Yu Po raised “existential” risks to Vesttoo, but these concerns were disregarded angrily by Bertele and any efforts of others to meet directly with Yu Po without Ginati were blocked.
- Other circumstantial evidence includes the fact that three separate banks (CCB, Standard Chartered and Santander) were used for forged and fraudulent LOCs and, remarkably, essentially all except one of the LOCs from three separate banks, to the tune of billions of dollars of collateral, appear to have been fraudulent.
Some of which is almost unbelievable in its nature, as this was not an especially well-hidden fraud it seems.
The full report can be found via the Vesttoo bankruptcy website here.
But, on that note, of this being almost unbelievable in the nature of how the fraud was instigated, that again raises questions over how many people knew and whether there were any outside influences on this activity, such as a wider criminal connection.
This is a quite incredible set of actions that were being taken to implement a fraud scheme, using company and even personal devices, which perhaps doesn’t make it sound so sophisticated.
But, make no mistake, once the full details are known, especially about any connections that have not been fully-investigated so far, it could well seem more sophisticated at that stage and perhaps more far-reaching as well.
But, sophisticated or not, this fraud got past many of the insurance and reinsurance industry’s checks and balances, something that the detail in this report will now help market participants to harden up and make more secure, for the benefit of everyone in the chain of transactions in future.
All of these findings will also support criminal cases that will begin in time, while we also understand that there is already an investigation ongoing in China and Hong Kong to try to uncover what happened in connection to CCB.