Vesttoo: The “Madoff of insurance”, trading forward a “wasteful pursuit” – Creditors

The Official Committee of Unsecured Creditors in the Vesttoo bankruptcy case objects strongly to the insurtech’s plans to attempt to trade forward, calling these efforts a “wasteful pursuit” that is burning money that could be returned to those harmed by the extensive letter of credit (LOC) in reinsurance fraud.

“Vesttoo – viewed as the Madoff of insurance – never operated as a business or as a going concern without revenue from the fraud,” the Committee writes in its latest filing.

It also states, “Like Bernie Madoff among investors, the trust Vesttoo once had with cedents evaporated upon the revelation of the fraud that Vesttoo’s former CEO, CFE, Senior Director of Capital Markets, and others perpetrated on insurance companies, and that trust will never be recovered. No reputable insurance company can afford the risk of doing business again with Vesttoo, regardless of the company’s new brand name.”

The latest move by the creditor committee seeks to put a halt to Vesttoo’s plans to rebrand and emerge as a new startup business, as they claim the insurtech is burning through money that could be recovered by its creditors.

“The Committee files this Motion to stop the Debtors from continuing their wasteful pursuit of a dead-on-arrival reorganization or going concern “Trade Forward” strategy that has depleted the Debtors’ available cash rapidly to a shocking degree,” the filing states.

The creditors believe that Vesttoo’s business was solely based on the fraud orchestrated by its senior leaders and accomplices and as there is no ongoing business, plus the matter of reputational damage, the creditors claim it is a wasted effort.

The Committee states that it does not support these efforts and wants to preserve what cash Vesttoo has available to be available for claims made against it by creditors.

Interestingly, the Committee states that it “seeks to have the cash resources of the Debtors preserved for the prosecution of claims against the parties that facilitated, aided and abetted, failed to prevent, or participated in the fraud that caused devastating harm to cedents and other unsecured creditors.”

Which suggests the Creditors may be considering, or have already begun, legal action against additional parties than just Vesttoo itself.

On Vesttoo’s go-forward plan, the creditors state, “Any plan premised on continued investment in the business, therefore, is doomed to fail at significant and prejudicial cost to the estates and their creditors.”

As a result, they ask for the bankruptcy court to terminate an exclusivity motion that gave Vesttoo time to come up with such a plan.

“Terminating exclusivity now will save the estates at least $8.5 million in cash based on the Debtors’ current monthly operational cost expenditures,” the creditors state.

“The Debtors’ exclusivity should be terminated so that the Committee can propose a simple liquidating plan and bring an end to the Debtors’ unfair, unrestrained, and wasteful spending.”

The creditors attack on Vesttoo is robust as they pull no punches in stating on the insurtech’s plans, “These aspirations are not written on a blank slate; rather, they come with the stain of the fraud by Bertele and his accomplices that makes any attempt to rebrand or repurpose the Vesttoo business dead on arrival. There are no details, let alone critical details, as to how the Debtors would take a business model whose “foundation” was a fraud and convert it to a viable business that will yield value to creditors.”

Adding, “The Debtors’ Trade Forward outline is an admission that they lack a business enterprise to sell or restructure.”

The filings are heavily redacted and there is significant detail now missing from public view in this case, but the creditors are scathing of Vesttoo ever having a chance of recovering something of its enterprise, under a new brand.

“The Debtors’ suggestion that Vesttoo could be rebranded and accepted into the reinsurance market as a rehabilitated company demonstrates a complete disconnect to the insurance industry,” they explain.

“The Debtors admitted in the Interim Report that they never generated revenues from a legitimate business operation. They now are viewed in the international news media as a fraudster that preyed on major insurance companies.”

The creditors go on to call Vesttoo’s ambitions to restore its credibility “absurd”.

They imply Vesttoo has been spending funds “to pursue an aspirational startup venture” that would otherwise have been available to creditors in the bankruptcy.

Saying, “The Debtors’ continued expenditure of those funds in pursuit of a futile strategy is an irresponsible waste of estate assets.”

The Committee of Unsecured Creditors wants to file a plan of liquidation immediately on the exclusivity period being terminated and wind down Vesttoo’s existing operations, followed by a process to “liquidate any non-litigation assets, pursue litigation claims, reconcile claims, and distribute proceeds to creditors.”

The “opaque aspirations” that Vesttoo has explained for its rebrand and trade forwards ambitions “could apply to almost any start-up enterprise” and do not constitute a business plan, the creditors state.

The creditors highlight concerns over directors independence at Vesttoo, the fact so many staff are still retained by the insurtech when it has no ongoing business at this time, as well as the ongoing costs being paid for their internal investigation which the creditor committee call “alarming news” and claim saw funds being paid to professionals including Kroll without the approval of the bankruptcy court.

They conclude that liquidation of Vesttoo is the best path to recover value for creditors and those damaged by the fraud, while the Committee has “no faith in the Debtors’ ability to spearhead a feasible plan”.

Saying, “The Debtors are committed to a path of high administrative costs that is quickly dissipating the value of their estates. Creditors who were defrauded by the prepetition Debtors in the amount of over one billion dollars should not be penalized further because of the Debtors’ insistence on moving forward with an unworkable and unconfirmable plan to reorganize. Because the Debtors have no viable business that could possibly emerge from these chapter 11 cases, the Debtors’ constituencies are best served by a liquidating plan that maximizes the value of the Debtors’ estates. Therefore, the Committee requests that the Court terminate the Exclusive Periods to permit the Committee to file a liquidation plan, which will allow these chapter 11 cases to advance quickly to a fair and equitable resolution for all parties in interest.”

It’s worth also highlighting an extract from a letter sent by the counsel to the Committee of Unsecured Creditors to Vesttoo’s counsel.

“Under these extraordinary circumstances, it would be impossible “to restore the critical relationship between Vesttoo and [the] insurance market.” Vesttoo has completely lost the trust of the world-wide insurance / reinsurance market and that trust will never be revived. We are confident that multiple witnesses from the insurance and reinsurance markets around the world would support the position that no rational market participant would ever trade with Vesttoo in the future.”

The letter concludes that Vesttoo’s Board should, “take all necessary steps to conserve the Company’s rapidly depleting cash resources and immediately cease all operations other than as necessary to preserve causes of action against those responsible for the harm caused to the Vesttoo creditors and estates.”

An analysis of Vesttoo’s finances found that it could run out of cash by year-end without funding, but the Creditors believe engaging investment bankers to try and raise funds would be a waste of money and also likely to fail.

However, Vesttoo’s interim CEO Ami Barlev wrote to the Creditors at the start of October to plead the insurtech’s case, saying, “We are highly confident that substantial value can be returned to Vesttoo’s creditors by monetizing Vesttoo’s unique platform. Over the past two months I have carried out extensive work at the Company in order to begin rebuilding the operations and leading the employees (especially the technological teams) to a new track of workstream. Continued technological development is critical in order to increase the value of the Company and create economic value for the benefit of all stakeholders. Moving quickly to monetize the value that is embedded within Vesttoo is in our mutual best interest. It will not only allow us to eliminate the cash burn of the on-going operations, but it will allow us to leverage our highly skilled employees who remain with the Company and take advantage of the remaining demand for the Vesttoo platform. And of course, we can pursue the value maximization of the legacy business, while continuing to prosecute litigation against those responsible for the issues at Vesttoo. It is only through this dual-pronged approach that we can truly maximize the value of Vesttoo for the benefit of all creditors.”

The global insurance and reinsurance industry is built on trust and relationships, so any attempt to resurrect Vesttoo from the ashes of the fraud that has been perpetrated was always going to be a challenge. A challenge now made even more difficult by the strong objection of some of the creditors wronged by the insurtech providing fake reinsurance collateral for their deals.

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