Vesttoo creditors seek legal discovery on China Construction Bank

The Committee of Unsecured Creditors in the Chapter 11 bankruptcy case of insurtech Vesttoo have filed a request with the court to allow them to conduct legal discovery on the main bank named in the letter of credit (LOC) reinsurance collateral fraud, China Construction Bank.

Recall that, of the billions of dollars in letters of credit (LOC) that should have backed up reinsurance deals involving Vesttoo, but that were found to be forged or invalid, the lions share were purported to have come from China Construction Bank.

In total, almost $3.36 billion of standby letters of credit (LOC) have been assumed to be fraudulently created.

Of these, the latest figures seen by Artemis suggest that $2.81 billion were purportedly from China Construction Bank, $362.5m purportedly from Standard Chartered Bank and $186m purportedly from Santander.

The creditor committee recently found out that the Vesttoo bankruptcy estate is expected to be relatively small and the discussed figure of “below $25 million” will not go far among them and the other creditors to the pending liquidation of the insurtech.

As we explained at that time, this will likely drive an expansion of focus for the creditors, as they look for other sources of possible reparation.

A sign of this expansion of focus came into view at the end of last week, when we reported that fronting specialist Clear Blue is suing broking group Aon over the Vesttoo LOC fraud issues.

Now, another signal of an expansion of focus is the fact the creditors are looking to get access to documentation and ask questions of one of the main financial entities at the heart of this whole saga, China Construction Bank.

The committee explained that it aims to “conduct Rule 2004 discovery to analyze what CCB and other third parties knew or should have known about the fraud that was being committed and what causes of action the Debtors’ estates may have as a result.”

Where China Construction Bank is concerned, the allegations levelled against Vesttoo suggested that an insider at the bank may have been involved in the fraudulent activity.

As a result, the bank is a key intermediary and likely to face growing scrutiny, especially now it’s known that there are little in the way of funds to be distributed from Vesttoo’s bankruptcy itself.

The Committee of Creditors has asked the Delaware bankruptcy court to approve an order that would compel China Construction Bank, including its New York branch, to produce a range of documents that are being requested.

The Creditor Committee explains that Vesttoo had shared numerous LOC documents with it that show China Construction Bank as the institution issuing them.

In addition, emails show that a China Construction Bank (CCB) employee Chun-Yin Lam, used an official bank email address to communicate with some of the Vesttoo employees accused of fraud, including co-founders Yaniv Bertele and Alon Lifshitz, as well as capital finder Udi Ginati.

The CCB employee Lam had also identified Chinese investor Yu Po Holdings as a client of the bank, which was the primary investor in reinsurance transactions involving fraudulent LOCs issued by CCB.

The Committee of Creditors said that the requested documents “are necessary to the Committee’s investigation into claims and causes of action the Debtors’ estates may have against CCB and other third parties.”

Perhaps a little concerning is the fact that even after a good faith investigation, the Committee said that it does not know the identity of legal counsel to CCB, or who it could contact at the bank to enquire about access to documents.

Given the alleged central role of China Construction Bank, in being identified as the issuer of the majority of the fraudulent LOCs, it’s perhaps surprising the bank has not had any involvement in the bankruptcy case at this stage of proceedings.

As well as all letters of credit and proof of funds statements, the creditors also seek all documents and communications between, among, mentioning, or copying a range of individuals related to Vesttoo, the investor Yu Po Holdings, or Cheng Yuan Holdings, which is another Chinese investor that had been named as a capital provider to back up LOCs that turned out to be fraudulent, according to court documents.

How easy a task it will be to get documentation from China Construction Bank remains to be seen, but the creditors clearly want a much deeper view into the workings of this reinsurance letter of credit fraud than has been provided to-date by the internal Vesttoo investigation or the work of Kroll.

Information gleaned could help the creditors in directing legal action more accurately and in the pursuit of reparations and monetary recoveries.

Read all of our coverage of the alleged fraudulent or forged letter-of-credit (LOC) collateral linked to Vesttoo deals.