As the audit and investigation into the discovery of fraudulent or forged letters of credit (LOCs) linked to collateralized reinsurance transactions facilitated by Vesttoo moves towards its third week, we now understand the FBI has begun its own investigation into the matter.A criminal investigation was always likely, given the far-reaching implications of what appears to be a sophisticated fraud involving letters of credit (LOCs) from a major international bank.As a recap, a still , while a later statement from Vesttoo said that its “procedures were circumvented.” The allegations suggest that the fraud was instigated through the use of forged letters of credit (LOCs) issued by the China Construction Bank (CCB).The bank in question was once the second largest bank in the world, by market cap, and the sixth largest company in the world, so it’s no surprise allegations of fraud would result in an international criminal investigation and it shows the seriousness of the matter.

We still don’t know where any fraudulent actions actually lie, with rumours ranging from the insurtech, to the bank itself, to the investors backing the collateral, or a mix of the three.But there are no facts as yet to identify any fraudulent activity and tie it to a specific party, it seems..

Now, in a market update sent to business partners by specialty collateralized reinsurance firm Corinthian, that we’ve seen, it’s made clear that FBI involvement is digging into the issues to try and identify the cause and source of any fraud that has occurred.Corinthian is one of the reinsurance firms affected, as it had transacted via Vesttoo, to source collateralized capacity to support a number of programs its companies had underwritten.As we reported this morning, to help the firm navigate the challenges the fraud has created and provide certainty to cedents and partners.

Corinthian said that it, “continues to aggressively pursue the investigation into what occurred and what party(ies) are responsible for this alleged fraud.” Alongside this, the reinsurance firm said, “In conjunction with our investigation, we have been in constant communication with the FBI Financial Crimes team who is conducting their own investigation into the alleged fraudulent activity.“The Corinthian team is committed to providing any and all relevant information to the FBI to assist with their investigation and we are confident that their involvement will provide answers to many of the unanswered questions that exist.” With investigations now known to also be underway in Bermuda, it stands to reason the international fall-out from this LOC fraud issue could spread more widely.There is the potential for regulators and authorities to kick off criminal and regulatory investigations also in other countries where the fraud has affected those involved in transactions.

One big question that remains, no matter where the source of any fraud lies, is what happened to the assets that were thought to be underpinning the LOCs in question, or did any assets really ever exist to support their issue? It will likely take a criminal investigation to find the answers to that and other questions, as well as to identify which parties, if any, broke the laws in the multiple countries these arrangements touched on.August 1st – .August 1st – .

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