Israeli AI Startup Vesttoo Files for Bankruptcy Following Fraud Allegations

Vesttoo, an Israeli startup that aims to use artificial intelligence in the insurance industry, filed for bankruptcy in the U.S. Monday after being accused of acting as a conduit for a multibillion-dollar fraudulent scheme involving faked letters of credit. 

The Federal Bureau of Investigation, several state insurance commissioners, and the Bermuda Monetary Authority are conducting probes into the matter, The Wall Street Journal reported earlier this month. White Rock, a subsidiary of insurance giant Aon that conducted business with Vesttoo, sued the firm last week seeking to freeze its assets and bank accounts, alleging that Vesttoo presented it with fraudulent letters of credit from third-party institutions totaling more than $2 billion. 

Two of Vesttoo’s co-founders, Yaniv Bertele and Alon Lifshitz, and most of its senior leadership stepped down earlier this month. The company’s new interim chief executive officer, Ami Barlev, said in a statement that forensic investigators working for Vesttoo found that “a number of factors, external to the company, led directly to the current crisis, including the involvement of certain foreign banks and financial institutions.”

Following Monday’s chapter 11 petition in the U.S. Bankruptcy Court in Wilmington, Del., Barlev said that in light of the various allegations related to the fraudulent letters of credit used on Vesttoo’s platform, the firm determined that bankruptcy was necessary to protect its assets and “serve as a forum to pursue legal action against those responsible for the company’s current situation.”

Vesttoo, which has been in business for about five years, attracted backers including Goldman Sachs and Banco Santander-funded Mouro Capital to finance its vision to shake up the reinsurance market with AI technologies. It was valued at $1 billion in its latest round of fundraising in October. 

Vesttoo acts as an intermediary between insurers and investors, some of whom use letters of credit provided by financial institutions for the transactions. In July, an insurer demanded payment in full under one of the letters of credit procured by Vesttoo, issued by China Construction Bank. CCB denied the insurer’s request for payment and informed the insurer that it wasn’t issued by the bank and appeared to be fraudulent.

This triggered an uproar in the insurance industry. Aon said that some of its clients and counterparties have either initiated or indicated they might initiate legal proceedings against Aon following allegations that fraudulent letters of credit issued by third-party banks were used in transactions involving Vesttoo. 

Vesttoo’s bankruptcy petition doesn’t list its estimated number of creditors, estimated assets, or estimated liabilities. The company is represented by DLA Piper. 

Vesttoo is based in Tel Aviv but has several offices around the world, including in New York, according to its website.

The case has been assigned to Judge Mary Walrath under case number 23-11160. 

Write to Alexander Gladstone at [email protected]

Corrections & Amplifications
Vesttoo has attracted backers including Goldman Sachs and Banco Santander-funded Mouro Capital. An earlier version of this article said the backers included Goldman Sachs, Banco Santander and Mouro Capital. (Aug. 15)