Flex-workspace firm Knotel sourced surety bonds from startup Rhino that cover the hefty security deposits due for two of its office leases if Knotel abandons the commitments.
But Rhino did not disclose to reinsurer Knight Re that its cofounder and CEO is the younger brother of Amol Sarva, the CEO of Knotel, raising a potential conflict of interest.
In recent months, Knotel has let millions of dollars in bills to vendors and landlords go unpaid. Its CEO said it will walk away from leases, which could leave Knight Re on the hook for substantial payouts.
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Flex-office firm Knotel and the insurance startup Rhino failed to disclose a family tie between the two companies when the pair struck a deal to place an insurance firm on the hook financially if Knotel defaults on office leases it has signed, according to the insurer involved in the transaction.
Rhino issued what’s known as surety bonds for two office leases signed by Knotel, a type of insurance product that will cover the cost of the hefty security deposits due for the spaces if Knotel walks away from its obligations to continue renting them – an event that could soon come to pass. Knotel’s chief executive Amol Sarva recently warned the struggling workspace company will shed 20% of its portfolio.
Knight Re, a Cayman Islands-based reinsurance company, said it didn’t know when it took on the role of backstopping the coverage for the security deposits that Knotel’s Sarva is the older brother of Rhino CEO Paraag Sarva.
“We were not initially aware of the familial relationship between Rhino and Knotel,” said John Rygh, vice president and general counsel for Knight Insurance Group, the Los Angeles-based parent company of Knight Re. “When we learned of the connection we immediately informed Rhino no similar bonds could be issued due to the appearance of impropriety.”
Read More: Knotel is scrambling to pay millions in bills that started stacking up before the coronavirus hit, and hasn’t paid April rent at some locations.
Rygh said he did not believe the omission amounted to purposeful wrongdoing by any of the involved parties, including Knotel and Rhino.
“We continue to monitor and are not aware of any actual improprieties,” Rygh said. “There have [been] no claims on the two Knotel bonds.”
Knight Re followed up with a request that Business Insider retract its statements concerning Rhino, citing confidentiality concerns. The company did not specify any inaccuracies in its original statement and executives at the company did not respond to requests for additional comment.
Knotel, which has amassed a 2.5 million square foot portfolio in the city, has slashed its staff amid the coronavirus crisis in recent weeks and missed revenue targets last year. In recent months, it has let millions of dollars in bills to vendors and landlords go unpaid. Its CEO Sarva recently said it will walk away from leases, which could leave Knight Re on the hook for substantial payouts …read more
Source:: Business Insider