China Construction Bank (CCB) is facing a lawsuit in Manhattan. The American insurance and home service software provider Porch Group has accused the third-largest commercial bank in China of engaging in large-scale fraud in the reinsurance industry, leading to “huge losses” for the company and a drop in stock prices.
According to a complaint filed on Thursday, Porch and its subsidiaries allege that China Construction Bank colluded with employees of the now-bankrupt Israeli insurtech company Vesttoo Ltd. to issue dozens of false reinsurance credit certificates, ensuring that insurance companies would receive reinsurance funds.
Porch and its subsidiary, Homeowners of America Insurance Co (HOA), reportedly paid tens of millions of dollars in premiums for non-existent reinsurance until discovering in July 2023 that some of the credit certificates supporting Vesttoo’s reinsurance transactions were forged.
Vesttoo provided insurance companies with so-called insurance-linked securities, another form of reinsurance, which were backed by collateral in the form of credit certificates.
After being accused of using around $2 billion in false credit certificates, Vesttoo filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code in August last year.
Porch stated that HOA’s reinsurance credit facility was suddenly proven to be worthless, as the institution had leveraged $300 million in false credit certificates provided by China Construction Bank, resulting in losses of tens of millions of dollars.
“The losses suffered by HOA and the fraud perpetrated by Vesttoo and China Construction Bank have shocked the market, leading to substantial losses for Porch Group shareholders and a dramatic fall in the stock price,” the complaint alleges, seeking monetary compensation to be determined during the trial.
The complaint further explains that HOA had to pay $80 million to cover insurance claims that should have been reinsured, while Porch had to provide $57 million to stabilize its subsidiary. Following the scandal, Porch’s stock price plummeted.
(*This article has been referenced from reports by Reuters and Bloomberg.)