The linked website for Yotta is withyotta.com which looks like some sort of online gambling site? The slogan is "Play games. Win Big." Am I missing something? It doesn't look like something I'd trust to put any amount of money into.
Looking at archive.org for September 2023 [1] they claim an "average annual savings reward" of "~2.70%*". At a real major US bank, I was getting 4.65% in my savings account at this same time.
Reading the terms at the bottom of the page it says: "Please note that the approximate Average Annual Savings Reward of 2.70% is a statistical estimate based on the probabilities of matching numbers each night. The Annual Savings Reward will vary from member to member depending on one’s luck in the Daily Drawings and is subject to change in the future."
Yotta marketed itself as a "bank" where every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited. They did this by offering below average interest rates on savings then parking people's money in accounts at banks with higher interest rates than they paid out and pulling some of the difference into a prize pool. Over time (very quickly actually) to increase revenue they pivoted into more traditional gambling.
Notably, Yotta is neither a bank nor a payment processor. They are just an "app" front end. Yotta's processor went bankrupt and the fintech bank they were working with to hold the accounts now disputes the amount of money they actually are holding to the tune of ~$96M being missing. This will probably be in courts for several years while things are unwound, someone will go to jail for financial crimes, and a lot of people will never be made whole. Some people have called for the FDIC to step in, but the FDIC has helpfully pointed out that no FDIC insured account has defaulted which is the necessary condition for FDIC insurance to pay out.
> Yotta marketed itself as a "bank" where every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited.
The archive link shows something a little more nuanced than Yotta presenting as a bank.
The archive link in gp has a hero text that says “banking” and then a few lines down says:
Yotta is a financial technology company, not a bank. Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
If I’m reading this as a consumer I’m thinking my money is protected but this Yotta thing is a lottery incentive to put deposits into those banks, maybe some loyalty incentive or marketing scheme on top of it?
Lesson learned, don't trust “not a bank” to deposit your money into the bank for you.
I like where your thinking and you seem confident, but history has shown this to not always be true. However, even if it does happen, people sitting in jail does nothing to fix the loss of the victims.
The fact that one of the parties involved hasn't done an audit of their accounts because "they can't afford it" is the chef's kiss of the clown show this debacle is.
Being a cynic means I also am confident someone will go to jail for financial crimes, but I am not confident that whoever does so will be the most guilty.
It reminds me of a certain country where one of the wealthiest powerful people set up a lottery system to persuade people to sign a petition espusong values of a politician well-known for not paying companies the full amount they're owed.
Notably, they promoted this scheme to people with troubled finances and tried to morally justified it by talking about how they were encouraging people to save their money who otherwise wouldn't. In principle that sounds good, but the reality is they just funneled those people into a glorified casino.
“Play Games. Win Big.” seems to be their current website’s slogan. In your archive link the same text instead reads “Banking for Winners”, which helps explain why people would be putting their life savings into this thing. In the small text below, they did say “Yotta is a financial technology company, not a bank.”, but that was immediately followed by: “Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
And they weren’t lying about that. This isn’t some cryptocurrency rug pull. They really were operating under the regulated financial system, in concert with banks. It isn’t even a situation where someone stole the money, as far as anyone can tell.
Sure, perhaps customers should have avoided the company for independent reasons, like the bad interest rate or the risk of it being an outright scam. But it’s hard for me to blame them when the actual failure mode was completely different and unexpected.
The core issue seems to be that a company named Synapse was a middleman to a lot of fintech startups and spread money around various banks but didn't actually keep very accurate records of balances. Evolve bank noticed this and hired a fancy consulting firm named Ankura to reconcile 100 million transactions. But most of the money is still lost in the various banks that Synapse used. The core issue is why is it so hard to use Synapse's records to find where the money is? And the various banks that Synapse used should be able to work together to reconcile the money. I wonder if most the missing money was just embezzled.
Totally sounded like embezzlement to me too. Somebody at Synapse making the records intentionally unreconcilable/vague somewhere in the accounting chain so that they could claim some portion of that as their own. I guess it could be gross incompetence, but the embezzlement story actually seems more plausible in this scenario, especially given the animosity between the corporate parties involved. Maybe an incompetent CEO at Synapse who really believes the vague numbers they were given that doesn't line up well with the other banks' own records. The fact that there was a lottery system baked in that grabbed from a pool of "cash winnings" that was financed by the interest rates of deposits at other banks just adds to the opportunities for embezzlement. An employee "gets lucky" with the gambling setup a few times with a pot that is non-attributable, says more money needs to get transferred to the pot because somebody won a payout, etc
That link shows 2.7% in Sept., 2023. It should have been more like 5%.
The yellow flag should have been the sketchy "win prizes" part of their offering that the article didn't really mention. What's this pseudo bank's innovation? A raffle?
I still agree that weren't actual signs of sloppy accounting customers should have seen, and as it really does look like customer funds were supposed to get deposited in an actual bank.
Who cares if it's just "a raffle"? Some behavioral economics research suggests it's a good way to get people to save, and it's not something offered by mainstream banks.
In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
This is probably a rug pull in a system designed for money laundering. They can’t figure out where money came from or who it belonged to…. I don’t think that happened out of the blue using standard accounting practices.
By mixing non-bank money companies and traditional banking services, you can construct an effectively opaque and ultra efficient system to obfuscate the origins of funds, all without deviation in an obvious way from what looks like standard accounting. All of the best money laundering happens in plain sight within the banking industry through clever constructions. AML rules are just there to eliminate the competition.
My guess is that it was time to shut down and the fingerprints had to be burned. Maybe no customer money was stolen, but the data of who has what money and who it belonged to might be hopelessly obfuscated in the process of obfuscation of their primary activities.
This is not likely an example of sloppy accounting, but rather of very, very clever accounting and orchestrated fraud to make money disappear out of an otherwise well designed system of accounting. The real question is where did the fraud propagate out of? What was the exploit, what was the systemic vulnerability, and who exploited it?
There is a huge incentive in fintech to create “legitimate products“ where John Q. Public deposits funds that just happen to be very useful for money laundering when combined with some other, apparently unrelated activity or similar lever that only an insider knows how to pull. It works fundamentally like a cryptocurrency coin mixer, without the hassle or suspicious profile. Shifting burdens of documentation often have gaps where things can “get lost” and shell companies that act only as conduits and never hold funds can evaporate with little accountability. Often, “unknowing” accomplice banks are left holding the bag…but all you have to figure out is where to repatriate the money that people will come looking for, the flows you know no one is going to come asking about effectively never happened.
Meanwhile it’s very easy to take a margin of 10 percent or more of the flows. And they aren’t small flows. It’s a multibillion dollar market. The demand and the incentives are absolutely spectacular.
For the most part, these crimes are invisible to the public, very difficult to prosecute, and effectively impossible to garner the political support to even launch an investigation into, for reasons.
I hope the hapless victims at least get their money back some day.
I disagree with this previous premise: In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
I suspect it's informed more by confirmation bias fed by the news cycle than actual facts. And Misty likely the rule of thumb featuring incompetence still holds.
I have very good reason to believe otherwise, but I do prefer your view of the world if given a choice. It’s a happier path to stay on until you find it no longer fits your experience.
Kinda like the billions of dollars that the DOD “can’t” account for.
You ever try to get the DOD to hand you a few million dollars? There’s a bit of paperwork involved.
Accounting is not hit or miss, and it’s not exactly an unexplored frontier. Its a pretty safe bet that when a well funded, fully staffed organization “can’t” account for some amount of money, it’s because someone along that path wanted it to be that way, or was negligent in such a way that it is equivalent to intent.
To clarify, I’m not maligning the DOD here. It’s just their way of saying “you don’t need to know.” Overall, the DOD is a great business partner, and I would recommend anyone with relevant high quality services to look into contracting with them. Aside from the relatively stringent paperwork requirements, they are responsive, diligent, and pleasant to work with.
There is a big difference between can't and won't. In the DoD case they "won't" for legal, and/or national security reasons. In the Synapse case I have no problem believing they can't because a bunch of tech "entrepreneurs" who think they can just break into as complicated an industry as money transfers are exactly the kind of people I would totally expect to mess it up without realizing it.
Most things are more complicated than people think from the outside and it's way easier to be incompetent at something than people think. That's the whole point of the rule in the first place.
I guess you are assuming that they did not employ an accounting firm or accountants to assist with the design of their system?
If that is the case (non-accountants attempting accounting, or not bothering, perhaps) then you have a point… but I doubt that is what happened.
It would be grossly negligent crossing into malfeasance, and probably criminally illegal to operate a money business without proper accounting supervision (and accounting is a regulated, qualified profession similar to law)
But, if that is indeed what happened, I look forward to seeing the founders in federal prison. I just kinda doubt they ran a banking startup without ever consulting a lawyer or an accountant.
Whenever I've got a chance to make half the going interest rate on my money, I want it to be with some disruptive fintech bro startup with a silly name. That's just how I roll.
The account may be a loss leader for them. It's definitely a legit bank; used to be owned by TIAA, and was called TIAA Bank for a while. They've tracked the fed rate for the whole year, so it's not a special temporary deal. The current rate only applies to new accounts; no idea how well established accounts track the rate.
Yes but I don’t perceive them as a “major US bank”. I was expecting that term to mean the largest banks for typical consumers like Bank of America or Wells Fargo or Chase. Everbank is small, and GS is mostly an investment bank rather than a retail bank.
Marcus, which is GS Bank, is certainly a retail product aimed at consumers.
Capital One, Discover, Ally, etc. were offering 4.35% at the peak. Not quite as good, but very decent for a savings account.
I don't know where you would draw the line under "major", though. But everyone knows BoA, WF, and Chase are trash when it comes to savings rates. They don't do it.
In Europe, HSBC (which is comparable in size to Chase and BoA) has reliably high saving accounts rates. HSBC UK was offering 5% until recently, I believe.
Hell, Fidelity pays 235 bps on checking and 435 on money market, which you can have them programmatically move everything over a fixed dollar amount in your checking into [1].
You're getting downvoted, but I don't think it's fair. Sure, there are many places you can get a high interest rate, but it's also true that the baseline savings accounts for most major banks aren't paying high interest.
Since the company the article is about is a new fintech, I’d say users should be comparing to online banks and not the old guard retail banks.
I.e. Marcus, Amex, citizen access, etc. note those are tied to very reputable businesses too.
Then there’s the hundred or more high yield online banks that are more unknown like live oak bank and others.
Choosing either of those two group to compare to, which since gotta was an unknown online bank seems far more appropriate than a legacy retail bank, and yotta’s interest rate is bad.
1) non-bank fintech put client's money in the bank
2) they told clients that money in the bank are covered by FDIC which is technically true
3) fintech moved money out of the bank
4) bank insurance doesn't apply because the bank didn't "lose" anything
At least this seems to match the Evolve's part of the story from the article. And Evolve is a real bank so they should have all the records to prove it. If so then it's a clear fraud by fintechs, but FDIC can't do much. Otherwise Evolve is lying and in this case FDIC can take over.
I wonder what is a reliable way to know if in the end your money is covered or not. Trusting what the contract tells you is evidently not enough. Having a "real" individual account number in a real bank? Not sure either, if intermediary can move the money out of your personal account then account insurance likely won't work either.
This seems like obviously fraud on the part of Synapse/Yotta. Where else could the money have gone? There were no risky investments. The underlying bank didn't collapse. Why isn't there a federal prosecutor on this?
Apparently, the problem is not that the money would be gone but that it’s just somewhere else because only BaaS middleman Synapse has access to the actual reconciliation how these funds distribute across individual fintech end users. According to the article, this is because of „very large bulk transfers“ which did not identify ultimate creditors. I am still puzzled how that can be. If end users top up their digital wallets, they typically send money by means of a real bank transfer to a client money account at a real bank. So at least at this initial point in time it was clear to the underlying banks who owned the money. Apparently, end users then spent money through user-facing fintech apps (I.e., „Yotta“) which is where the problem must have started as reconciliation of funds sat with Synapse only but not with the underlying banks…?
It would be great if someone with more background could comment to clarify as this case is potentially relevant to many other fintech / banking-as-a-service offerings out there.
Ok so as I understand it the flow was something like:
1. Individuals deposited to Yotta
2. Yotta sent deposited funds to Evolve Bank via Synapse
3. Evolve Bank received "lump" deposits with no record of whose money was whose
So somewhere between Yotta and Evolve Bank the money was pooled and records of whose money was whose was not forwarded. (Note that the FDIC now requires that the receiving back keep a record of whose money they're receiving because of this case.)
Synapse went bankrupt. Supposedly Synapse's estate can figure out where everyone's money went, but they have no money to hire an auditor. Meanwhile Evolve Bank says they didn't receive all of the funds so there's something like 90 million that is "lost".
Finally, the FDIC ruled that individuals had business relationships with Yotta, and those business relationships are not insured by FDIC, so any recovery of funds from Yotta would need to be pursued in Civil Court.
I don't have more context than what's in the article but what it sounds like is they've lost access to the database that says $2000 from this pile of $10MM belong to John Doe, because the company that hired the devs who understood this stuff is bankrupt, and the involved parties can't seem to reach an arrangement to bring in a cleanup crew. I don't think any money is actually missing.
Ultimately a modern bank is just a software system pushing around the proverbial proto between some databases and other financial software systems.
Look up the Peerstreet bankruptcy for a variant of this story. "FDIC insurance" didn't help there either. That's all the fintech experience I ever intend to have...
> In the immediate aftermath of Synapse's bankruptcy, which happened after an exodus of its fintech clients, a court-appointed trustee found that up to $96 million of customer funds was missing. The mystery of where those funds are hasn't been solved, despite six months of court-mediated efforts between the four banks involved.
Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances while these besuited lowlifes get to go home to their families every night while they decide amongst themselves whether they can figure out who is responsible for destroying thousands of people’s lives.
I don't want to go out of my way to defend their incompetence, but you have to prove what happened. It's not fair to send a CEO to prison because a different insider independently embezzled funds and they lost the records.
You have to prove the bank robber did it too? Why is it that we wiretap phones, subpoena companies, search homes and detain people for the lowest of drug crimes but everyone throws their hands up here?
Like, how did you expect to make a case if you don't do anything?
But think of the innovation we'd lose out on by jailing executives doing this. A bank that gives sub-market interest and "invests" part of the difference in a scratcher game that they run. Oh, and for complex legal reasons, they're not a bank, but they do offer bank accounts at a different bank.
> Seems like a rather large moral hazard if we don't
Based on what? The catastrophic failure rate is low. And if you’re sensitive to that risk, don’t bank with a firm that’s selling you on sticking it to the man or whatever.
Command responsibility applies here. CEOs get multiple times their average employee's pay because of their responsibility, which should include responsibility to know when stuff goes wrong.
> Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances
Because if you allow it, you'll have hundreds of these everyday. The law is there to "scare" others from doing it not punish the perpetrator. On the other hand, you don't have hundreds of fintech startups raising millions every day.
It makes no sense to throw someone in prison in this case unless they are a flight risk until their sentencing is complete.
>Because if you allow it, you'll have hundreds of these everyday. The law is there to "scare" others from doing it not punish the perpetrator. On the other hand, you don't have hundreds of fintech startups raising millions >every day.
Surely the scale of harm caused is the metric here, and not the frequency of potential crimes individually committed
In hindsight the fact that these neobanks can advertise their customers' funds are FDIC-insured is crazy. If I run a ponzi scheme but deposit my victims' money at Chase, does that mean I can correctly claim the funds are FDIC-insured?
I think the FDIC insurance is per account at a bank with a banking charter. Fintechs are typically given one account by a real bank
and so funds are commingled but also it is a single account so only 85k insuran ce even though the account might have 1000s customer funds commingled.
This is not true for fiduciary accounts, which are covered per principal. So FDIC coverage should extend to all customers if the account was properly declared.
However this apparently doesn’t protect you from the failure of the third party, which is what is unexpected. If you look at this bulletin the FDIC put out after the Synapse incident, they’re basically claiming they aren’t stepping in because a bank hasn’t failed. A fintech that isn’t the bank, but has records of what’s at the bank, failed.
Personally, I find the explanation to be pretty weak - what does pass through insurance even mean then? Does every fintech startup need to also directly be a bank - if so that’s a huge barrier to entry and basically gifts incumbents with regulatory capture. If the money is in an FDIC protected account, it should be safe. It does not make sense to me that they would step in for Silicon Valley Bank’s failure, but not in this situation.
One weird part of the situation is that it seems the underlying bank does not have records about each customer and their numbers. To me that seems negligent on the part of the underlying bank. Surely they knew about this arrangement of pass through insurance and the need to protect funds. They should have maintained separate accounts for each client of the third party service. Regardless of negligence it seems the FDIC is trying to make this record keeping a requirement:
https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
The fact that any bank would advertise "FDIC insured" is silly, as it conditions potential customers to look to the banks for this information. It would be better if folks were conditioned to consult only the FDIC themselves for this information.
Could you expand on why is it easily prosecutable?
I sense that it has something to do with lying in documents.
But hypothetically: if I write “no”. Proof of lying requires proof of terrorism. (At which point you did all the job of proving terorism, despite the document)
You clearly do not know a single real thing about America. America itself is a con job from to back, to to bottom, left to right. Between the reserve currency global fraud, the inflation money printing, the scam startups, the deficit spending and national debt fraud, the various banking and financial frauds, even our children are raised with fraudulent schemes with things like the “fundraising” through selling Girl Scout cookies and circulate bars. All the scamming online, in our professional lives, personal lives, or fake religious groups and political entities, is all just snake oil heritage and the rich plundering the country through a fraud based economy.
It’s something that most Europeans that come to America either are shocked by or fall prey to, because not only are laws tighter in Europe regarding fraudulent activities, but in many places of Western Europe, society is still relatively high trust and of good morals and ethics with little of the overt and blatant open scamming and lies you see in America on a daily basis to such a degree that most Americans cannot even see it.
A more apparent example of that is our stores in America that are always having a BIG BIG SALE of up to 80% OFF. When it’s just the same market prices claiming to be 80% discounted from some made up price.
And to add to this, I think it was JC Penny that called this "80% OFF" sale out and stopped doing that. The result, they came very close to Chapter 11. They ended up reversing that policy just to stay in business.
This is just one example of how really stupid the Average American is. The past election also just proved how dumb the average person is in the US.
If regulators don't act, then nothing will stop copycats from doing this again. The end result will be the loss of trust in new banks. The people that would benefit from this effect are established banks, so it may not be in the OG banks' interest to cooperate. I would be interested to hear a patio11 analysis of this situation.
They are de-facto banks. Laypeople cannot understand the difference, and these fintech services use that confusion to amplify their reputation. It is manipulative.
We need a Nutrition Facts label for places you put your money.
I don't know what a de-facto bank is. To me the term is associated solely with FDIC protection. Otherwise why would I give them my money in the first place? Their only purpose is to give me access to electronic transactions via a debit card, and if I can't trust that my money will remain in the debit card the whole system collapses. FDIC protection covers more than I need for access to liquid cash and I'd prefer to manually manage my long-term cash well outside of savings accounts.
(Note, i'm intentionally ignoring the many other services banks offer as they're all fed by willing deposits and are otherwise irrelevant to FDIC protections.)
Nonetheless, your description of the problem is apt and I largely agree.
FDIC insurance is why people trust banks. I'm still trying to figure out what Synapse was. Not a bank though. Whatever they were, clearly they shouldn't have been trusted.
But users never really saw Synapse. They saw Yotta, which was a YC backed fintech working with Evolve, a real FDIC bank.
I really don’t understand what purpose any of these companies had for savings accounts — why not just bank at Evolve?? That’s where I’m confused. This doesn’t even seem like high rates or other perks?
And evolve just had a huge data breach triggering many business clients to leave.
One of the big use cases for me was/is the easy movement of money cross currency. Even something that should be easy like getting an IBAN as a US citizen is a pain/expensive without companies like Wise.
Especially for savings. Using a fintech for day to day banking has its uses (I'm a customer of Revolut and N26) and they blow traditional banks out of the water in terms of features and usability (at one point my traditional bank was blocking "suspicious" card transactions from "abroad"... Ireland and Luxemburg, stuff like Amazon and Uber).
But savings are mostly fire and forget, unless you decide to play an active part which is not for everyone and most people shouldn't.
I'm hoping it shows up in Matt Levine's Money Stuff - this is the sort of area where I've seen patio11 defer to him before, though obviously my ideal world would be getting to read an analysis from each of them.
But this is why we don't get new banks, and generally speaking, new things are needed to challenge old things to improve the overall sector. Without challengers, entrenched interests get to engage in monopolistic/money cow behaviors that treat customers as the captives that they are.
But yes, given the current state of things I agree that your take is pragmatic. I'm just saying, that's a big problem in the medium/long term.
Money of that quantity doesn't just disappear unless someone wants it to. Why isn't the DoJ involved threatening criminal action to put people in jail?
J6 was an insurrection that should have been appropriately responded to with immediate and overwhelming national guard force (not necessarily lethal), not a protest.
Much of the situation we are in is a result of treating everyone involved in J6 with kid gloves.
> J6 was an insurrection that should have been appropriately responded to with immediate and overwhelming national guard force (not necessarily lethal), not a protest.
This is incorrect. It wasn’t an insurrection but also not a legally protected protest. It was a riot. No one has been charged with insurrection, let alone convicted for it. That word has only been used by news media, politicians, and private citizens. The most serious charge was seditious conspiracy but only a few people (like five) were charged with that. Most of the charges were for simple trespassing since most people on the Capitol grounds were not involved in any conspiracy and weren’t violent or destructive either.
The word "insurrection" — according to most dictionaries, meaning a "violent uprising against civil authority or established government" or some variation thereof — is perfectly fine to describe Jan 6.
It has no legal meaning, so nobody can get charged for participating in an insurrection, but that is of course irrelevant to the question of whether the word is appropriate. There's no legal term for many words that we use colloquially or narratively to describe actions with which one may be legally charged with a crime. If you steal someone's wallet, you may be charged with "theft of personal property", not "pickpocketing", but what you did was pickpocketing.
The fact that most participants were not violent is of course a red herring. They participated in an organized insurrection involving trespassing, destruction of property, conspiracy to commit treason (many participants were actively looking for Mike Pence and the crowd was chanting "Hang Pence"), and so on. "I was only at the party to have fun" is no excuse if the party was an violent, organized riot. You are the company you keep.
Your contempt fails to bolster your argument. I would propose that both crimes should be investigated - the fact that J6 litigation consumed so many resources is unfortunate. But it was also well underway when this particular scheme collapsed.
I do fear that the new administration stated aims of reducing regulations and oversight remaining in this space will make it even harder for the DOJ to pursue financial crimes (or even to be inclined to.)
I feel bad she was manipulated into being there, but being a fool is not a good excuse for breaking the law. We for some reason decided not to hold the real instigators accountable, which means I'm sure it will happen again.
> Customers believed the accounts were backed by the full faith and credit of the U.S. government.
Let's just hope that the U.S. Government doesn't bail out people who gambled on sketchy investment schemes. With a renewed push for "crypto" my big fear is us Taxpayers will be bailing out everyone's 401ks in 4 years.
Well, it’s not. The investigation and unwind is still under way. Whether individuals will go to jail is yet to be seen but the underlying bank is basically dead (Evolve) and its customer basis is fleeing to more rigorous shores. But screwing up your fiduciary duty via a poorly managed FBO is not legal and never has been and maybe won’t be in the next administration (who knows!)
Is this another failure of the US government to provide one of the most basic protection to its citizens? Normally the government should establish rules that prevent this sort of thing to happen.
This is a new problem created by the rise of very complex fintech companies using middlemen to handle transactions. The FDIC is proposing a new rule to require better record keeping to try to prevent issues like this in the future.
I would say that normally, to face "very complex fintech" the goverment should set a solid set of fundamental rules that ensure security for the people, then it should ensure seriously that they are respected. That should be something like, "do whatever creative fintech you want as long as you respect these rules".
It seems to me that not creating and enforcing such a system of rules, or doing poor rules that leaves doors open for abuse or errors, is a failure of the government and of the political estabilishment.
Unfortunately Government regulations are almost never proactive, always reactive. Honestly a lot of these new fintech companies feel like they exist mainly to get around current regulations.
you should watch state of the union when they pan out to show congress(wo)man and senators and see about roughly their age based on how they look (or even easier, see it online). average age is like 87.7 :) how are they going to set fundamental rules about very complex fintech while talking to their grand-granddaughters on their nokia’s…
My first question is how the government could let the app/arrangement happen in the first place. I'm guessing they thought it was "just an extra layer before hitting the real bank," which is what I assumed everyone was thinking when they deposited their money.
When apparently it's "not quite", then I guess it's illegal?
> The mystery of where those funds are hasn’t been solved, despite six months of court-mediated efforts between the four banks involved. That’s mostly because the estate of Andreessen Horowitz-backed Synapse doesn’t have the money to hire an outside firm to perform a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.
Ok, so they can’t find $50m cause they don’t have any money? They still have $11m that they intend to pay customers back. Surely the customers are willing to sacrifice some of that to pay someone to look at the spreadsheets.
Also, that A16z isn’t willing to pay out of pocket for the reconciliation is a disgrace. Surely the bad PR is worth much more than the cost of the audit…
Never heard of yotta before. Upon seeing that the couple deposited $280k with them, I followed the accompanying link to their website. It was a horrifying experience.
Huh? A month ago, the bankruptcy trustee for Synapse said that reconciliation was complete and funds would be returned by the end of the year. What happened?[1]
Oh. Note at the end: (Updates with quote from trustee’s report in last paragraph. A previous version of this story corrected the last paragraph to say a potential shortfall remains between the amount of money available for return to customers and what is recorded on Synapse’s ledgers.)
indeed, I just closed my transferwise / wise account. Great service in the past, but suddenly felt less comfortable.
A simple transfer between own accounts, marketed as a few clicks and a selfie, turned into bio-metric face scan, no thanks! Plus they are pushing the app to the point of making it difficult to use a desktop browser. Who in their right mind demands a webcam live session to scan two sides of an ID card. Oh and they got pushy to allow the bio-metric scan to be done by a third party, as if!
The closing account dark patterns were hilarious! 'are you sure', 'you'll be missing out on great rates...', 'let us connect you to...', 'are you really sure, you wont be able to open a new account', 'well we cant actually close your account for 6 years...'
At least I got a nice webgl rendered rotating texture mapped tick to show I'd achieved something by about step 8.
It's worth noting that cash held in a Fidelity brokerage account is handled the same way, by being "swept" into a bank account held by Fidelity at an actual bank so Fidelity can claim it's FDIC insured. I guess if Fidelity folds there would be bigger problems than where the cash balance is, though...
Correct, Fidelity has a list of 25 Program Banks[1] of varying quality, so I prefer sweeps into a money market fund instead of a bank.
I also use Schwab _Bank_'s checking account instead of Fidelity's Cash Management Account for similar reasons. The latter's debit card is issued by PNC Bank and administered by BNY Mellon[2]. They are large institutions, but I have no wish to deal with the finger-pointing when something goes wrong. Whereas at Schwab, I know who to blame: Schwab.
This type of specialization or "deintegration" seen with neobanks in the name of innovation seems to be a common pattern used to skirt accountability, and it is weaponized against the average consumer's already inadequate rights and ability to recover damages.
The problem is that the FDIC isn’t stepping in because they claim they can only do so when there is a bank failure, not a failure at the third party. So they’re claiming that clients of the third party have to go through the bankruptcy proceedings, rather than just getting covered by the FDIC, whereas most clients are expecting the FDIC to protect funds in all situations not just a “bank failure”:
https://www.fdic.gov/consumer-resource-center/2024-06/bankin...
Another problem is that in some of these setups, the third parties are not managing separate accounts for each client at the underlying bank. So the underlying bank is not maintaining records that track each client’s separate funds. To me that seems odd and I would expect neobanks to track those numbers themselves but also for the underlying bank to do so. The FDIC is working on making that a hard requirement:
https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
Too easy, I recommend life in prison working as slave labour to pay off all damages with interest set to reasonable rate, say prevailing rate +10%. And this should also apply to all stock holders. Clearly it is time to do away with limited liability.
There's no indication that's the case though? If the standard of evidence for executing CEOs is "maybe because there's embezzling going on because lack of records will help an embezzler", then it seems fair to execute programmers for introducing 0days because "maybe it's an intentional backdoor because a well placed memory corruption bug would help hackers". Even before the xz backdoor, accusations of vulnerabilities being intentional backdoors isn't uncommon.
Heh, in real dystopia, terrorist groups pay the family of suicide bombers for their "sacrifice". In your dystopia, boards of failing/lying companies will employ suicide CEOs just before they get caught...
The linked website for Yotta is withyotta.com which looks like some sort of online gambling site? The slogan is "Play games. Win Big." Am I missing something? It doesn't look like something I'd trust to put any amount of money into.
Looking at archive.org for September 2023 [1] they claim an "average annual savings reward" of "~2.70%*". At a real major US bank, I was getting 4.65% in my savings account at this same time.
Reading the terms at the bottom of the page it says: "Please note that the approximate Average Annual Savings Reward of 2.70% is a statistical estimate based on the probabilities of matching numbers each night. The Annual Savings Reward will vary from member to member depending on one’s luck in the Daily Drawings and is subject to change in the future."
[1] https://web.archive.org/web/20230912164609/https://www.withy...
Yotta marketed itself as a "bank" where every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited. They did this by offering below average interest rates on savings then parking people's money in accounts at banks with higher interest rates than they paid out and pulling some of the difference into a prize pool. Over time (very quickly actually) to increase revenue they pivoted into more traditional gambling.
Notably, Yotta is neither a bank nor a payment processor. They are just an "app" front end. Yotta's processor went bankrupt and the fintech bank they were working with to hold the accounts now disputes the amount of money they actually are holding to the tune of ~$96M being missing. This will probably be in courts for several years while things are unwound, someone will go to jail for financial crimes, and a lot of people will never be made whole. Some people have called for the FDIC to step in, but the FDIC has helpfully pointed out that no FDIC insured account has defaulted which is the necessary condition for FDIC insurance to pay out.
> Yotta marketed itself as a "bank" where every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited.
The archive link shows something a little more nuanced than Yotta presenting as a bank.
The archive link in gp has a hero text that says “banking” and then a few lines down says: Yotta is a financial technology company, not a bank. Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
If I’m reading this as a consumer I’m thinking my money is protected but this Yotta thing is a lottery incentive to put deposits into those banks, maybe some loyalty incentive or marketing scheme on top of it?
Lesson learned, don't trust “not a bank” to deposit your money into the bank for you.
Just seeing the phrase 'financial technology company' is a red flag.
Over and over we've seen the same financial scam play out:
a) company starts up that explicitly avoids being a bank
b) company does something where some amount of money is placed in FDIC-insured banks, and it TRUMPETS on its website: "FDIC INSURED" over and over
c) consumers are misled into thinking their money is safe
d) regulators do not act
e) consumers lose all their money
f) profit (for a very specific set of individuals)
The company can even fake up a bunch of social media accounts to tell people reassuring lies right up until the scam collapses.
These scams will continue until regulators get serious about putting people in jail for them.
https://www.reddit.com/r/yotta/comments/1ctf25r/is_our_money...
Prize linked accounts is a thing. In the US, it started with banks in Michigan 15 years ago
https://en.m.wikipedia.org/wiki/Prize-linked_savings_account
See also
https://www.pewtrusts.org/en/research-and-analysis/issue-bri...
tbf the UK government does the same thing: https://en.wikipedia.org/wiki/Premium_Bonds
> someone will go to jail for financial crimes,
I like where your thinking and you seem confident, but history has shown this to not always be true. However, even if it does happen, people sitting in jail does nothing to fix the loss of the victims.
The fact that one of the parties involved hasn't done an audit of their accounts because "they can't afford it" is the chef's kiss of the clown show this debacle is.
Being a cynic means I also am confident someone will go to jail for financial crimes, but I am not confident that whoever does so will be the most guilty.
It reminds me of a certain country where one of the wealthiest powerful people set up a lottery system to persuade people to sign a petition espusong values of a politician well-known for not paying companies the full amount they're owed.
Notably, they promoted this scheme to people with troubled finances and tried to morally justified it by talking about how they were encouraging people to save their money who otherwise wouldn't. In principle that sounds good, but the reality is they just funneled those people into a glorified casino.
The idea is that people will be more interested in saving with a low interest rate with the chance to win more than having the higher interest rate.
In Ireland the state runs this thing called prize bonds which is a similar idea https://www.statesavings.ie/help-support/help-articles/how-d...
Looks exactly like Premium Bonds here in the UK. (Winnings on those are also tax free, not sure if yours are the same.)
“Play Games. Win Big.” seems to be their current website’s slogan. In your archive link the same text instead reads “Banking for Winners”, which helps explain why people would be putting their life savings into this thing. In the small text below, they did say “Yotta is a financial technology company, not a bank.”, but that was immediately followed by: “Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
And they weren’t lying about that. This isn’t some cryptocurrency rug pull. They really were operating under the regulated financial system, in concert with banks. It isn’t even a situation where someone stole the money, as far as anyone can tell.
Sure, perhaps customers should have avoided the company for independent reasons, like the bad interest rate or the risk of it being an outright scam. But it’s hard for me to blame them when the actual failure mode was completely different and unexpected.
The core issue seems to be that a company named Synapse was a middleman to a lot of fintech startups and spread money around various banks but didn't actually keep very accurate records of balances. Evolve bank noticed this and hired a fancy consulting firm named Ankura to reconcile 100 million transactions. But most of the money is still lost in the various banks that Synapse used. The core issue is why is it so hard to use Synapse's records to find where the money is? And the various banks that Synapse used should be able to work together to reconcile the money. I wonder if most the missing money was just embezzled.
Totally sounded like embezzlement to me too. Somebody at Synapse making the records intentionally unreconcilable/vague somewhere in the accounting chain so that they could claim some portion of that as their own. I guess it could be gross incompetence, but the embezzlement story actually seems more plausible in this scenario, especially given the animosity between the corporate parties involved. Maybe an incompetent CEO at Synapse who really believes the vague numbers they were given that doesn't line up well with the other banks' own records. The fact that there was a lottery system baked in that grabbed from a pool of "cash winnings" that was financed by the interest rates of deposits at other banks just adds to the opportunities for embezzlement. An employee "gets lucky" with the gambling setup a few times with a pot that is non-attributable, says more money needs to get transferred to the pot because somebody won a payout, etc
> bad interest rate
That link shows 2.7% in Sept., 2023. It should have been more like 5%.
The yellow flag should have been the sketchy "win prizes" part of their offering that the article didn't really mention. What's this pseudo bank's innovation? A raffle?
I still agree that weren't actual signs of sloppy accounting customers should have seen, and as it really does look like customer funds were supposed to get deposited in an actual bank.
>What's this pseudo bank's innovation? A raffle?
Who cares if it's just "a raffle"? Some behavioral economics research suggests it's a good way to get people to save, and it's not something offered by mainstream banks.
https://en.wikipedia.org/wiki/Prize-linked_savings_account
In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
This is probably a rug pull in a system designed for money laundering. They can’t figure out where money came from or who it belonged to…. I don’t think that happened out of the blue using standard accounting practices.
By mixing non-bank money companies and traditional banking services, you can construct an effectively opaque and ultra efficient system to obfuscate the origins of funds, all without deviation in an obvious way from what looks like standard accounting. All of the best money laundering happens in plain sight within the banking industry through clever constructions. AML rules are just there to eliminate the competition.
My guess is that it was time to shut down and the fingerprints had to be burned. Maybe no customer money was stolen, but the data of who has what money and who it belonged to might be hopelessly obfuscated in the process of obfuscation of their primary activities.
This is not likely an example of sloppy accounting, but rather of very, very clever accounting and orchestrated fraud to make money disappear out of an otherwise well designed system of accounting. The real question is where did the fraud propagate out of? What was the exploit, what was the systemic vulnerability, and who exploited it?
There is a huge incentive in fintech to create “legitimate products“ where John Q. Public deposits funds that just happen to be very useful for money laundering when combined with some other, apparently unrelated activity or similar lever that only an insider knows how to pull. It works fundamentally like a cryptocurrency coin mixer, without the hassle or suspicious profile. Shifting burdens of documentation often have gaps where things can “get lost” and shell companies that act only as conduits and never hold funds can evaporate with little accountability. Often, “unknowing” accomplice banks are left holding the bag…but all you have to figure out is where to repatriate the money that people will come looking for, the flows you know no one is going to come asking about effectively never happened.
Meanwhile it’s very easy to take a margin of 10 percent or more of the flows. And they aren’t small flows. It’s a multibillion dollar market. The demand and the incentives are absolutely spectacular.
For the most part, these crimes are invisible to the public, very difficult to prosecute, and effectively impossible to garner the political support to even launch an investigation into, for reasons.
I hope the hapless victims at least get their money back some day.
I disagree with this previous premise: In finance, you should never assume incompetence over malice. It very rarely works out that way. Malicious incompetence maybe.
I suspect it's informed more by confirmation bias fed by the news cycle than actual facts. And Misty likely the rule of thumb featuring incompetence still holds.
I have very good reason to believe otherwise, but I do prefer your view of the world if given a choice. It’s a happier path to stay on until you find it no longer fits your experience.
Kinda like the billions of dollars that the DOD “can’t” account for.
You ever try to get the DOD to hand you a few million dollars? There’s a bit of paperwork involved.
Accounting is not hit or miss, and it’s not exactly an unexplored frontier. Its a pretty safe bet that when a well funded, fully staffed organization “can’t” account for some amount of money, it’s because someone along that path wanted it to be that way, or was negligent in such a way that it is equivalent to intent.
To clarify, I’m not maligning the DOD here. It’s just their way of saying “you don’t need to know.” Overall, the DOD is a great business partner, and I would recommend anyone with relevant high quality services to look into contracting with them. Aside from the relatively stringent paperwork requirements, they are responsive, diligent, and pleasant to work with.
There is a big difference between can't and won't. In the DoD case they "won't" for legal, and/or national security reasons. In the Synapse case I have no problem believing they can't because a bunch of tech "entrepreneurs" who think they can just break into as complicated an industry as money transfers are exactly the kind of people I would totally expect to mess it up without realizing it.
Most things are more complicated than people think from the outside and it's way easier to be incompetent at something than people think. That's the whole point of the rule in the first place.
I guess you are assuming that they did not employ an accounting firm or accountants to assist with the design of their system?
If that is the case (non-accountants attempting accounting, or not bothering, perhaps) then you have a point… but I doubt that is what happened.
It would be grossly negligent crossing into malfeasance, and probably criminally illegal to operate a money business without proper accounting supervision (and accounting is a regulated, qualified profession similar to law)
But, if that is indeed what happened, I look forward to seeing the founders in federal prison. I just kinda doubt they ran a banking startup without ever consulting a lawyer or an accountant.
I watched some YouTube videos that said it was a bank app (sort of) before changing to gambling.
Whenever I've got a chance to make half the going interest rate on my money, I want it to be with some disruptive fintech bro startup with a silly name. That's just how I roll.
> At a real major US bank, I was getting 4.65% in my savings account at this same time.
Was that in a CD, or in an account with a big minimum? Most major banks did not offer such a rate in a generic mass market liquid savings product.
Marcus (Goldman Sachs) high yield savings was 4.50% until revenetly. EverBank is at 4.75% right now. These are normal savings accounts.
How does Everbank offer rates above the fed rate? Wealthfront offers good rates but they track the fed rate pretty closely.
The account may be a loss leader for them. It's definitely a legit bank; used to be owned by TIAA, and was called TIAA Bank for a while. They've tracked the fed rate for the whole year, so it's not a special temporary deal. The current rate only applies to new accounts; no idea how well established accounts track the rate.
Yes but I don’t perceive them as a “major US bank”. I was expecting that term to mean the largest banks for typical consumers like Bank of America or Wells Fargo or Chase. Everbank is small, and GS is mostly an investment bank rather than a retail bank.
Marcus, which is GS Bank, is certainly a retail product aimed at consumers.
Capital One, Discover, Ally, etc. were offering 4.35% at the peak. Not quite as good, but very decent for a savings account.
I don't know where you would draw the line under "major", though. But everyone knows BoA, WF, and Chase are trash when it comes to savings rates. They don't do it.
In Europe, HSBC (which is comparable in size to Chase and BoA) has reliably high saving accounts rates. HSBC UK was offering 5% until recently, I believe.
Hell, Fidelity pays 235 bps on checking and 435 on money market, which you can have them programmatically move everything over a fixed dollar amount in your checking into [1].
[1] https://www.fidelity.com/spend-save/fidelity-cash-management...
> the largest banks for typical consumers like Bank of America or Wells Fargo or Chase
These banks are up front about not competing on rates.
US Bank[1] which is the second oldest and fifth largest[2] US bank currently has 3.5% on their Money Market account which is basically an HYSA.
[1]: https://www.usbank.com/bank-accounts/savings-accounts/elite-...
[2]: https://en.wikipedia.org/wiki/U.S._Bancorp
You're getting downvoted, but I don't think it's fair. Sure, there are many places you can get a high interest rate, but it's also true that the baseline savings accounts for most major banks aren't paying high interest.
Proof:
https://www.bankofamerica.com/deposits/bank-account-interest...
https://www.chase.com/personal/savings/interest-savings/inte...
https://www.wellsfargo.com/savings-cds/rates/
https://www.navyfederal.org/checking-savings/savings/savings...
https://www.citi.com/banking/current-interest-rates/savings-...
Discover (high interest) even does a comparison on their site comparing their interest rates to other major banks
https://www.discover.com/online-banking/savings-account/
So the average person who goes to the Wells Fargo down the street and says "give me a savings account" is getting minuscule interest.
Since the company the article is about is a new fintech, I’d say users should be comparing to online banks and not the old guard retail banks.
I.e. Marcus, Amex, citizen access, etc. note those are tied to very reputable businesses too.
Then there’s the hundred or more high yield online banks that are more unknown like live oak bank and others.
Choosing either of those two group to compare to, which since gotta was an unknown online bank seems far more appropriate than a legacy retail bank, and yotta’s interest rate is bad.
Did I get this right:
1) non-bank fintech put client's money in the bank
2) they told clients that money in the bank are covered by FDIC which is technically true
3) fintech moved money out of the bank
4) bank insurance doesn't apply because the bank didn't "lose" anything
At least this seems to match the Evolve's part of the story from the article. And Evolve is a real bank so they should have all the records to prove it. If so then it's a clear fraud by fintechs, but FDIC can't do much. Otherwise Evolve is lying and in this case FDIC can take over.
I wonder what is a reliable way to know if in the end your money is covered or not. Trusting what the contract tells you is evidently not enough. Having a "real" individual account number in a real bank? Not sure either, if intermediary can move the money out of your personal account then account insurance likely won't work either.
This seems like obviously fraud on the part of Synapse/Yotta. Where else could the money have gone? There were no risky investments. The underlying bank didn't collapse. Why isn't there a federal prosecutor on this?
Apparently, the problem is not that the money would be gone but that it’s just somewhere else because only BaaS middleman Synapse has access to the actual reconciliation how these funds distribute across individual fintech end users. According to the article, this is because of „very large bulk transfers“ which did not identify ultimate creditors. I am still puzzled how that can be. If end users top up their digital wallets, they typically send money by means of a real bank transfer to a client money account at a real bank. So at least at this initial point in time it was clear to the underlying banks who owned the money. Apparently, end users then spent money through user-facing fintech apps (I.e., „Yotta“) which is where the problem must have started as reconciliation of funds sat with Synapse only but not with the underlying banks…?
It would be great if someone with more background could comment to clarify as this case is potentially relevant to many other fintech / banking-as-a-service offerings out there.
Ok so as I understand it the flow was something like:
1. Individuals deposited to Yotta 2. Yotta sent deposited funds to Evolve Bank via Synapse 3. Evolve Bank received "lump" deposits with no record of whose money was whose
So somewhere between Yotta and Evolve Bank the money was pooled and records of whose money was whose was not forwarded. (Note that the FDIC now requires that the receiving back keep a record of whose money they're receiving because of this case.)
Synapse went bankrupt. Supposedly Synapse's estate can figure out where everyone's money went, but they have no money to hire an auditor. Meanwhile Evolve Bank says they didn't receive all of the funds so there's something like 90 million that is "lost".
Finally, the FDIC ruled that individuals had business relationships with Yotta, and those business relationships are not insured by FDIC, so any recovery of funds from Yotta would need to be pursued in Civil Court.
I don't have more context than what's in the article but what it sounds like is they've lost access to the database that says $2000 from this pile of $10MM belong to John Doe, because the company that hired the devs who understood this stuff is bankrupt, and the involved parties can't seem to reach an arrangement to bring in a cleanup crew. I don't think any money is actually missing.
Ultimately a modern bank is just a software system pushing around the proverbial proto between some databases and other financial software systems.
Look up the Peerstreet bankruptcy for a variant of this story. "FDIC insurance" didn't help there either. That's all the fintech experience I ever intend to have...
> In the immediate aftermath of Synapse's bankruptcy, which happened after an exodus of its fintech clients, a court-appointed trustee found that up to $96 million of customer funds was missing. The mystery of where those funds are hasn't been solved, despite six months of court-mediated efforts between the four banks involved.
This is the real question.
Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances while these besuited lowlifes get to go home to their families every night while they decide amongst themselves whether they can figure out who is responsible for destroying thousands of people’s lives.
I don't want to go out of my way to defend their incompetence, but you have to prove what happened. It's not fair to send a CEO to prison because a different insider independently embezzled funds and they lost the records.
You have to prove the bank robber did it too? Why is it that we wiretap phones, subpoena companies, search homes and detain people for the lowest of drug crimes but everyone throws their hands up here?
Like, how did you expect to make a case if you don't do anything?
Seems like a rather large moral hazard if we don't?
At some point the courts should be able to say "ok fine you were the directors responsible for the company you're going to prison n years, sorry."
Bet we'd see a lot more documentation suddenly appear.
But think of the innovation we'd lose out on by jailing executives doing this. A bank that gives sub-market interest and "invests" part of the difference in a scratcher game that they run. Oh, and for complex legal reasons, they're not a bank, but they do offer bank accounts at a different bank.
I'd bet 95% of fintech startups are just walking moral hazards to begin with.
> Seems like a rather large moral hazard if we don't
Based on what? The catastrophic failure rate is low. And if you’re sensitive to that risk, don’t bank with a firm that’s selling you on sticking it to the man or whatever.
Command responsibility applies here. CEOs get multiple times their average employee's pay because of their responsibility, which should include responsibility to know when stuff goes wrong.
> Personally I think the real question is why a robber that stole $500 from a bank teller drawer and anyone that helped them gets thrown in prison without any meaningful consideration of their circumstances
Because if you allow it, you'll have hundreds of these everyday. The law is there to "scare" others from doing it not punish the perpetrator. On the other hand, you don't have hundreds of fintech startups raising millions every day.
It makes no sense to throw someone in prison in this case unless they are a flight risk until their sentencing is complete.
>Because if you allow it, you'll have hundreds of these everyday. The law is there to "scare" others from doing it not punish the perpetrator. On the other hand, you don't have hundreds of fintech startups raising millions >every day.
Surely the scale of harm caused is the metric here, and not the frequency of potential crimes individually committed
For $96 million, I would be a flight risk.
In hindsight the fact that these neobanks can advertise their customers' funds are FDIC-insured is crazy. If I run a ponzi scheme but deposit my victims' money at Chase, does that mean I can correctly claim the funds are FDIC-insured?
I think the FDIC insurance is per account at a bank with a banking charter. Fintechs are typically given one account by a real bank and so funds are commingled but also it is a single account so only 85k insuran ce even though the account might have 1000s customer funds commingled.
This is not true for fiduciary accounts, which are covered per principal. So FDIC coverage should extend to all customers if the account was properly declared.
This isn’t accurate. A fintech’s own money (as opposed to customer funds) may have low insurance. But if set up properly, those customer funds can have pass through FDIC insurance. See https://www.fdic.gov/financial-institution-employees-guide-d...
However this apparently doesn’t protect you from the failure of the third party, which is what is unexpected. If you look at this bulletin the FDIC put out after the Synapse incident, they’re basically claiming they aren’t stepping in because a bank hasn’t failed. A fintech that isn’t the bank, but has records of what’s at the bank, failed.
https://www.fdic.gov/consumer-resource-center/2024-06/bankin...
Personally, I find the explanation to be pretty weak - what does pass through insurance even mean then? Does every fintech startup need to also directly be a bank - if so that’s a huge barrier to entry and basically gifts incumbents with regulatory capture. If the money is in an FDIC protected account, it should be safe. It does not make sense to me that they would step in for Silicon Valley Bank’s failure, but not in this situation.
One weird part of the situation is that it seems the underlying bank does not have records about each customer and their numbers. To me that seems negligent on the part of the underlying bank. Surely they knew about this arrangement of pass through insurance and the need to protect funds. They should have maintained separate accounts for each client of the third party service. Regardless of negligence it seems the FDIC is trying to make this record keeping a requirement: https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
That's batshit insane.
The whole point of banking that people have forgotten is trust.
Large banks have gone to great lengths to teach people that banks can never be trusted
I trust them a whole lot more than any random fintech company. At least with traditional banks, there is some amount of protection available.
There's generally nothing stopping scammers from lying in ads. Enforcement is only done afterwards.
The fact that any bank would advertise "FDIC insured" is silly, as it conditions potential customers to look to the banks for this information. It would be better if folks were conditioned to consult only the FDIC themselves for this information.
It should be a protected term in advertising. As soon as you use it, you surrender yourself to FDIC auditors.
It serves the same purpose as asking customers "are you a terrorist" -- it creates an easily prosecutable offence.
Is terrorism not already an easily prosecutable offense?
Could you expand on why is it easily prosecutable?
I sense that it has something to do with lying in documents.
But hypothetically: if I write “no”. Proof of lying requires proof of terrorism. (At which point you did all the job of proving terorism, despite the document)
If you ask it online then I guess it counts as wire fraud which may be easier to prosecute.
How is this possible in USA?
Decades of deregulation. More to come.
What specific regulation would have prevented this? Or is this just a knee jerk response against "deregulation"?
You clearly do not know a single real thing about America. America itself is a con job from to back, to to bottom, left to right. Between the reserve currency global fraud, the inflation money printing, the scam startups, the deficit spending and national debt fraud, the various banking and financial frauds, even our children are raised with fraudulent schemes with things like the “fundraising” through selling Girl Scout cookies and circulate bars. All the scamming online, in our professional lives, personal lives, or fake religious groups and political entities, is all just snake oil heritage and the rich plundering the country through a fraud based economy.
It’s something that most Europeans that come to America either are shocked by or fall prey to, because not only are laws tighter in Europe regarding fraudulent activities, but in many places of Western Europe, society is still relatively high trust and of good morals and ethics with little of the overt and blatant open scamming and lies you see in America on a daily basis to such a degree that most Americans cannot even see it.
A more apparent example of that is our stores in America that are always having a BIG BIG SALE of up to 80% OFF. When it’s just the same market prices claiming to be 80% discounted from some made up price.
And to add to this, I think it was JC Penny that called this "80% OFF" sale out and stopped doing that. The result, they came very close to Chapter 11. They ended up reversing that policy just to stay in business.
This is just one example of how really stupid the Average American is. The past election also just proved how dumb the average person is in the US.
Read "A decade of armageddon" or some other good books on how the US markets and banks actually work..
TLDR: financial crime pays in the US.
If regulators don't act, then nothing will stop copycats from doing this again. The end result will be the loss of trust in new banks. The people that would benefit from this effect are established banks, so it may not be in the OG banks' interest to cooperate. I would be interested to hear a patio11 analysis of this situation.
> The end result will be the loss of trust in new banks.
The problem is in part that these fintech services are not in fact banks.
They are de-facto banks. Laypeople cannot understand the difference, and these fintech services use that confusion to amplify their reputation. It is manipulative.
We need a Nutrition Facts label for places you put your money.
I don't know what a de-facto bank is. To me the term is associated solely with FDIC protection. Otherwise why would I give them my money in the first place? Their only purpose is to give me access to electronic transactions via a debit card, and if I can't trust that my money will remain in the debit card the whole system collapses. FDIC protection covers more than I need for access to liquid cash and I'd prefer to manually manage my long-term cash well outside of savings accounts.
(Note, i'm intentionally ignoring the many other services banks offer as they're all fed by willing deposits and are otherwise irrelevant to FDIC protections.)
Nonetheless, your description of the problem is apt and I largely agree.
Well there are two appropriate action--
Jail time to the CEO of that compary for fraud (because it wasn't FDIC insured) or full reimbursement of all creditors.
I'm okay with either, but if neither of those happens then it's a failing system.
FDIC insurance is why people trust banks. I'm still trying to figure out what Synapse was. Not a bank though. Whatever they were, clearly they shouldn't have been trusted.
But users never really saw Synapse. They saw Yotta, which was a YC backed fintech working with Evolve, a real FDIC bank.
I really don’t understand what purpose any of these companies had for savings accounts — why not just bank at Evolve?? That’s where I’m confused. This doesn’t even seem like high rates or other perks?
And evolve just had a huge data breach triggering many business clients to leave.
One of the big use cases for me was/is the easy movement of money cross currency. Even something that should be easy like getting an IBAN as a US citizen is a pain/expensive without companies like Wise.
Especially for savings. Using a fintech for day to day banking has its uses (I'm a customer of Revolut and N26) and they blow traditional banks out of the water in terms of features and usability (at one point my traditional bank was blocking "suspicious" card transactions from "abroad"... Ireland and Luxemburg, stuff like Amazon and Uber).
But savings are mostly fire and forget, unless you decide to play an active part which is not for everyone and most people shouldn't.
I'm hoping it shows up in Matt Levine's Money Stuff - this is the sort of area where I've seen patio11 defer to him before, though obviously my ideal world would be getting to read an analysis from each of them.
FWIW they are acting, these things just take a while, current phase of gathering comments ends December 2nd https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
>The end result will be the loss of trust in new banks. The people that would benefit from this effect are established banks
Distrusting new banks in favor of old banks is generally a good idea.
But this is why we don't get new banks, and generally speaking, new things are needed to challenge old things to improve the overall sector. Without challengers, entrenched interests get to engage in monopolistic/money cow behaviors that treat customers as the captives that they are.
But yes, given the current state of things I agree that your take is pragmatic. I'm just saying, that's a big problem in the medium/long term.
Much like with cybersecurity incidents. Regulators haven’t acted and they keep happening.
Money of that quantity doesn't just disappear unless someone wants it to. Why isn't the DoJ involved threatening criminal action to put people in jail?
Because they only stole from poor people who can't lobby. The article even quotes someone saying as much.
Because rich people got richer, which is always ok
[flagged]
J6 was an insurrection that should have been appropriately responded to with immediate and overwhelming national guard force (not necessarily lethal), not a protest.
Much of the situation we are in is a result of treating everyone involved in J6 with kid gloves.
> J6 was an insurrection that should have been appropriately responded to with immediate and overwhelming national guard force (not necessarily lethal), not a protest.
This is incorrect. It wasn’t an insurrection but also not a legally protected protest. It was a riot. No one has been charged with insurrection, let alone convicted for it. That word has only been used by news media, politicians, and private citizens. The most serious charge was seditious conspiracy but only a few people (like five) were charged with that. Most of the charges were for simple trespassing since most people on the Capitol grounds were not involved in any conspiracy and weren’t violent or destructive either.
The word "insurrection" — according to most dictionaries, meaning a "violent uprising against civil authority or established government" or some variation thereof — is perfectly fine to describe Jan 6.
It has no legal meaning, so nobody can get charged for participating in an insurrection, but that is of course irrelevant to the question of whether the word is appropriate. There's no legal term for many words that we use colloquially or narratively to describe actions with which one may be legally charged with a crime. If you steal someone's wallet, you may be charged with "theft of personal property", not "pickpocketing", but what you did was pickpocketing.
The fact that most participants were not violent is of course a red herring. They participated in an organized insurrection involving trespassing, destruction of property, conspiracy to commit treason (many participants were actively looking for Mike Pence and the crowd was chanting "Hang Pence"), and so on. "I was only at the party to have fun" is no excuse if the party was an violent, organized riot. You are the company you keep.
[flagged]
Your contempt fails to bolster your argument. I would propose that both crimes should be investigated - the fact that J6 litigation consumed so many resources is unfortunate. But it was also well underway when this particular scheme collapsed.
I do fear that the new administration stated aims of reducing regulations and oversight remaining in this space will make it even harder for the DOJ to pursue financial crimes (or even to be inclined to.)
as opposed to quite accurate parotting of extremist infotainment?
I feel bad she was manipulated into being there, but being a fool is not a good excuse for breaking the law. We for some reason decided not to hold the real instigators accountable, which means I'm sure it will happen again.
Note the "Backed by YCombinator" on their web page:
https://web.archive.org/web/20200630201639/https://www.withy...
https://www.ycombinator.com/companies/yotta
https://web.archive.org/web/20240529113112/https://www.ycomb...
lately there has been an increase in scammy yc startups
> Customers believed the accounts were backed by the full faith and credit of the U.S. government.
Let's just hope that the U.S. Government doesn't bail out people who gambled on sketchy investment schemes. With a renewed push for "crypto" my big fear is us Taxpayers will be bailing out everyone's 401ks in 4 years.
This will be even more common place in the Musk-Vivek deregulation hellscape
Will it? I have no idea how this trash could be legal currently, yet it is.
Well, it’s not. The investigation and unwind is still under way. Whether individuals will go to jail is yet to be seen but the underlying bank is basically dead (Evolve) and its customer basis is fleeing to more rigorous shores. But screwing up your fiduciary duty via a poorly managed FBO is not legal and never has been and maybe won’t be in the next administration (who knows!)
Is this another failure of the US government to provide one of the most basic protection to its citizens? Normally the government should establish rules that prevent this sort of thing to happen.
This is a new problem created by the rise of very complex fintech companies using middlemen to handle transactions. The FDIC is proposing a new rule to require better record keeping to try to prevent issues like this in the future.
https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
I would say that normally, to face "very complex fintech" the goverment should set a solid set of fundamental rules that ensure security for the people, then it should ensure seriously that they are respected. That should be something like, "do whatever creative fintech you want as long as you respect these rules".
It seems to me that not creating and enforcing such a system of rules, or doing poor rules that leaves doors open for abuse or errors, is a failure of the government and of the political estabilishment.
Unfortunately Government regulations are almost never proactive, always reactive. Honestly a lot of these new fintech companies feel like they exist mainly to get around current regulations.
you should watch state of the union when they pan out to show congress(wo)man and senators and see about roughly their age based on how they look (or even easier, see it online). average age is like 87.7 :) how are they going to set fundamental rules about very complex fintech while talking to their grand-granddaughters on their nokia’s…
Rules don't stop all fraud, justike laws don't stop all crime.
But they can stop most, just like laws can stop most. I don't think it's logical to imply that if something isn't 100% effective then it's worthless.
Kinda feels like Synapse was really just a fancy money laundering operation.
My first question is how the government could let the app/arrangement happen in the first place. I'm guessing they thought it was "just an extra layer before hitting the real bank," which is what I assumed everyone was thinking when they deposited their money.
When apparently it's "not quite", then I guess it's illegal?
> The mystery of where those funds are hasn’t been solved, despite six months of court-mediated efforts between the four banks involved. That’s mostly because the estate of Andreessen Horowitz-backed Synapse doesn’t have the money to hire an outside firm to perform a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.
Ok, so they can’t find $50m cause they don’t have any money? They still have $11m that they intend to pay customers back. Surely the customers are willing to sacrifice some of that to pay someone to look at the spreadsheets.
Also, that A16z isn’t willing to pay out of pocket for the reconciliation is a disgrace. Surely the bad PR is worth much more than the cost of the audit…
Yes. Marc Andreessen is worth about $2 billion. he should be personally paying for the audit.
Never heard of yotta before. Upon seeing that the couple deposited $280k with them, I followed the accompanying link to their website. It was a horrifying experience.
It seems like they were branded much more conservatively and bankish at the point where said couple would have picked them.
The site *now* ... yeah. Ick.
You are right. I didn't say it in my comment but I was judging the couple hardly but looks like I had made a mistake.
This is the oldest snapshot that the wayback machine has of it: https://web.archive.org/web/20200630201639/https://www.withy...
Proudly displaying the Y Combinator logo right there on the home page.
Huh? A month ago, the bankruptcy trustee for Synapse said that reconciliation was complete and funds would be returned by the end of the year. What happened?[1]
Oh. Note at the end: (Updates with quote from trustee’s report in last paragraph. A previous version of this story corrected the last paragraph to say a potential shortfall remains between the amount of money available for return to customers and what is recorded on Synapse’s ledgers.)
[1] https://www.bloomberg.com/news/articles/2024-10-23/funds-fro...
Uh-oh, this really shakes my confidence in fintech neobanks like Mercury, Wise, Revolut and the lot.
indeed, I just closed my transferwise / wise account. Great service in the past, but suddenly felt less comfortable.
A simple transfer between own accounts, marketed as a few clicks and a selfie, turned into bio-metric face scan, no thanks! Plus they are pushing the app to the point of making it difficult to use a desktop browser. Who in their right mind demands a webcam live session to scan two sides of an ID card. Oh and they got pushy to allow the bio-metric scan to be done by a third party, as if!
The closing account dark patterns were hilarious! 'are you sure', 'you'll be missing out on great rates...', 'let us connect you to...', 'are you really sure, you wont be able to open a new account', 'well we cant actually close your account for 6 years...'
At least I got a nice webgl rendered rotating texture mapped tick to show I'd achieved something by about step 8.
It's worth noting that cash held in a Fidelity brokerage account is handled the same way, by being "swept" into a bank account held by Fidelity at an actual bank so Fidelity can claim it's FDIC insured. I guess if Fidelity folds there would be bigger problems than where the cash balance is, though...
Correct, Fidelity has a list of 25 Program Banks[1] of varying quality, so I prefer sweeps into a money market fund instead of a bank.
I also use Schwab _Bank_'s checking account instead of Fidelity's Cash Management Account for similar reasons. The latter's debit card is issued by PNC Bank and administered by BNY Mellon[2]. They are large institutions, but I have no wish to deal with the finger-pointing when something goes wrong. Whereas at Schwab, I know who to blame: Schwab.
This type of specialization or "deintegration" seen with neobanks in the name of innovation seems to be a common pattern used to skirt accountability, and it is weaponized against the average consumer's already inadequate rights and ability to recover damages.
[1] https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa... [2] https://www.fidelity.com/cash-management/help-center/debit-c...
I've toyed with a couple neobanks and eventually decided the uncertainty and risk was not worth it. I'll gladly stick with Chase and AmEx.
Neobanks and other third parties can legitimately have pass through FDIC insurance: https://www.fdic.gov/financial-institution-employees-guide-d...
The problem is that the FDIC isn’t stepping in because they claim they can only do so when there is a bank failure, not a failure at the third party. So they’re claiming that clients of the third party have to go through the bankruptcy proceedings, rather than just getting covered by the FDIC, whereas most clients are expecting the FDIC to protect funds in all situations not just a “bank failure”: https://www.fdic.gov/consumer-resource-center/2024-06/bankin...
Another problem is that in some of these setups, the third parties are not managing separate accounts for each client at the underlying bank. So the underlying bank is not maintaining records that track each client’s separate funds. To me that seems odd and I would expect neobanks to track those numbers themselves but also for the underlying bank to do so. The FDIC is working on making that a hard requirement: https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
Revolut are a real bank, at least in Europe, and all funds in it are protected by the relevant country's banking fund.
Igiving away prizes looks pretty much like a ponzi scheme to me.
It's not. It's a scheme that arose out of behavioral economics.
https://en.wikipedia.org/wiki/Prize-linked_savings_account
Why would those two things be mutually exclusive?
U
Trust me, bro.
We really oughta institute the death penalty for execs involved in shit like this.
Too easy, I recommend life in prison working as slave labour to pay off all damages with interest set to reasonable rate, say prevailing rate +10%. And this should also apply to all stock holders. Clearly it is time to do away with limited liability.
Surely you'd also support the death penalty for developers that cause multi-million dollar bugs?
Bugs are unintentional. This was massive intentional theft.
There's no indication that's the case though? If the standard of evidence for executing CEOs is "maybe because there's embezzling going on because lack of records will help an embezzler", then it seems fair to execute programmers for introducing 0days because "maybe it's an intentional backdoor because a well placed memory corruption bug would help hackers". Even before the xz backdoor, accusations of vulnerabilities being intentional backdoors isn't uncommon.
don't word it like that! it should be a punishment that sufficiently discourages repetition
Heh, in real dystopia, terrorist groups pay the family of suicide bombers for their "sacrifice". In your dystopia, boards of failing/lying companies will employ suicide CEOs just before they get caught...
"This was the story of Howard Beale: the first known instance of a man who was killed because he had lousy ratings."
Skin in the game prevents a lot of problems.
[dead]
[dead]
[dead]
[dead]