Israel-based fintech company Vesttoo has filed for Chapter 11 bankruptcy protection in a US court in order to pursue legal action against those responsible for a fake collateral scandal, the company announced on Monday.

Vesttoo, which is partially backed by Banco Santander's fintech venture capital arm Mouro Capital, has made staff redundancies, closed offices, and appointed an interim CEO following the discovery of fraudulent letters of credit used on its platform. The company believes that these measures are necessary for its long-term growth and success and will allow it to aggressively pursue those responsible for harming its business.

Vesttoo provides insurers with access to insurance-linked securities, which are an alternative form of reinsurance backed by collateral such as letters of credit. The company has conducted internal and external investigations into the events leading up to the discovery of the fraudulent letter of credit that was used in multiple transactions.

Vesttoo's most recent funding was $80 million at a $1 billion valuation in October 2020. In its bankruptcy filing, the company has appointed law firm DLA Piper and financial adviser Kroll to represent it. Reinsurance broker Aon's White Rock SAC, a major client of Vesttoo, has submitted a request to the Tel Aviv District Court to freeze the company's assets in Israeli banks, insurance companies, and investment houses.

If approved, this request would temporarily freeze all of Vesttoo's assets in Israel up to NIS 500 million ($135 million). Last week, Vesttoo had its US assets, including bank accounts, frozen by a New York court following a request from White Rock. The court issued a temporary restraining order preventing Vesttoo from moving assets in its bank accounts, except for funds up to the amount of $1,000,000, until a court hearing is held on Tuesday.