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.
Should I be suspicious that Wealthfront Cash accounts will fail as well?
What about Fidelity Cash Management Accounts?
>Wealthfront isn’t a bank, but we work with partner banks to get you an industry-leading APY, the security of FDIC insurance, and a full array of fee-free, no-strings-attached checking features — all wrapped up into one label-defying package we call a Cash Account.
>The Fidelity Cash Management Account is not a bank account. It is a brokerage account that allows you to spend, save, and invest. The account offers competitive rates as well as spending and money movement features including a free debit card, checkwriting, Bill Pay, and more.
Just casually reading r/fidelity on Reddit (which is a subreddit run by Fidelity) would make me run fast and far from using their cash management account for anything. Widespread check fraud has caused Fidelity to be extremely cautious -- read slow -- in giving people access to checks they deposit into their CMAs. I'm not saying this is a bad thing, at least Fidelity is being cautious about taking care of their customers' money, but it's created a good deal of pain and anger for people who are depending on Fidelity for everyday banking-style transactions. I'll invest with Fidelity, but I prefer to keep my everyday money in a traditional bank or credit union.
if you have investments at fidelity you can just use the brokerage account as cash management. the brokerage account can access funds using a debit card and ACH just fine; I do still recommend opening a CMA for ATM fee reimbursements though.
none of these funds availability problems can happen if you have margin enabled; note that you won't pay any margin interest either as funds on hold are tradable immediately.
These could have similar issues with gaps in FDIC protections due to money is being “managed” by intermediaries or because of the type of account. Their fine print discloses as much.
As a sibling comment points out, Fidelity is seemingly a reputable enterprise with other business that would be adversely effected by poor management of this product and the reputation harm that would come with it.
Among other features Wealthfront are trying to manage around the $250K FDIC limit for you by moving your money into multiple insured accounts - this is probably a new area with not enough regulation.
Any comment on what issues there are with paying somebody to open accounts for you with, I assume- a power of attorney allowing them to do explicitly that?
At that point the only thing at risk is fraudulent use of said POA, and whatever funds are held outside of actual accounts.
> At that point the only thing at risk is fraudulent use of said POA, and whatever funds are held outside of actual accounts
Which exactly the reason why the FDIC didn't intervene in the article: the Fintech startup didn't deposit the unaccounted(!) millions of customer funds into FDIC-insured accounts. The law should be tightened up to prohibit claims of FDIC protection without meeting the reporting and deposit process requirements.
The two scenarios:
1) handing a business your life savings to manage, a
2) authorizing a company to manage your finances so they're in FDIC insured accounts
Are completely different. There's no laws to update, and the FDIC isn't skittering out of paying on a technicality.
And, frankly, if anybody reading this is looking at option #2- do yourself a favor and get an accountant and a wealth manager that both have fiduciary duties. Might as well find a lawyer as well.
Fidelity is very regulated, and large. If something happened it would be a systemic event that the government would definitely get involved. Wealthfront may be fine too, I just don't know.
To put it differently, Yotta’s customer’s misfortunes are because they are poor and not politically connected. If Fidelity fails, their customers are rich and they vote: they must be made whole.
Kind of like the SVB failure. SVB customers were made whole. Systematic risk and all that.
Fidelity’s brokerage business would be covered by SIPC, which would include its cash management accounts. They also likely sweep cash out to FDIC-insured accounts. More importantly though, Fidelity is large enough that you’re unlikely to need that insurance, and that’s really how I’d prefer to approach this.
Yeah we can look at 2008 and say no institution is safe, but if there’s risk everywhere, I’ve just got to try and minimize that as best I can. Fidelity didn’t give me any sort of scare that year fwiw. Disclosure: I’ve been using Fidelity for basically all of my money for most of my career now, including cash management.
Not parent but, what about this does not scream red bloody flag to you?
hand over their account passwords to them
Give my banking password to some other company? That's a red bloody flag right there. Stop the presses. Nobody should ever do that. Not outside of very specific use cases like a password manager and in that case there better be seventeen million levels of encryption and such in place.
for storage in cleartext.
Did we mention the color red? On a flag? I think we did. Cleartext, eh? Who thought this was a good idea?
Storage in cleartext would indeed be a huge red flag, but Plaid says they store it encrypted and I've seen no evidence that they are wrong about that.
That still might be a red flag but not as big a red flag. Cleartext means a database leak would leaks passwords. Encrypted, if done right, would mean a database leak would not leak passwords.
Can you share a link that describes what exactly they do?
What I would expect to be table stakes is that they only ever have an encrypted version of the data on their end (like a password manager) and that the encryption key is stored on my machine or if on their side that it by itself is protected by a passphrase that I have to enter each time plaid needs to do something. If we are talking storing the clear text password somehow coz they use screen scraping to implement their features for some banks.
All I find on their site (casually looking) is marketing fluff.
Also really I would expect that they never even need my password at all and that instead they have a proper API between them and the bank(s) where I authorize specific scopes only (preferably read only scoping being available) and my password stays with me and if something bad were to ever be done with a write scoped token from Plaid it would be traceable to their token authorizing it and they would be liable. When I give them my password they basically get full monetary power of attorney and the bank would always fault me ("we can see you logged in with your user and password. We tell you to keep your password/PIN secure and to never share it. Sorry, money gone".
Relevant section for the "we do store your password" case:
In other cases, when you link a financial institution to an app via Plaid, you provide your login credentials to us. We store those credentials and use them to collect the data to power the services you’ve chosen and, when requested, securely share it with the app you’re using and establish a secure connection that you control. We then help keep your data safe and private with best-in-class encryption protocols.
Meaning exactly nothing. "encryption protocols" may simply mean that when they log in to screen scrape your bank's online banking they do so over HTTPS.
Sorry but this has zero meaning and I maintain: Red bloody flag. If there's any actual proof out there of them doing all this in a secure way, I'm happy to have my mind changed but this is just part of said marketing fluff.
Like Synapse, this sounds like the "put all your eggs in our digital basket" style of fintech "disruption" is bound to blow up in the faces of everyone involved.
> Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
I just don't understand why on Earth it's legal to use the term "FDIC" one sentence away from "not a bank" without there being a regulatory framework defining minimum record keeping and reporting requirements to avoid exactly this type of failure.
The European "e-money" scheme seems to be exactly the opposite: Deposits are not insured (I believe there are requirements on the stability of the depository bank), but intermediaries, i.e. "financial technology companies", have to make detailed reports about their customers' balances available on a very short time frame to avoid exactly such problems.
Ideally, there would be a combination of both (pass-through insurance against bank failure and reporting requirements to reduce the blast radius of non-bank failure).
> 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
This is what scares me. I use Betterment for everything, which strikes me as a much more legitimate company, but it follows the same model where accounts are "FDIC insured" by being distributed among various bank partners. I always thought that meant it was safe if the company had troubles, but it seems not.
I don’t think Betterment distributes funds to centralized accounts like Synapse does, it establishes accounts in your name at those partner banks and provides a unified interface over those funds. You can do the same thing yourself by going to each bank individually and opening up accounts manually, but then you’d have to deal with KYC for each one and their online banking interfaces of varying quality. That’s how they get their $2 million insurance number, since they open accounts at 8 banks and FDIC insures $250k per account.
That was my understanding when I looked into Betterment Cash Reserve (I ended up just going the manual route because I’m paranoid).
Good to know! Yeah I guess that's the inverse of the OP: one account spread to multiple bank accounts vs multiple accounts dumped into one bank account
> every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited
reminds me of a payment scheme someone in Poland described about getting a car on 'lottery', where every month one person 'won' the rest of their payments paid off as the prize, while the 'worst loser' paid twice the price of the car? i was pretty young so i'm sure i'm missing the details
I've had an account with them. It looks like in March they quit giving automatic tickets monthly based on funds. Now the app looks much more like a casino, with other games and a separate yottacash balance for playing games including the lottery that use to be automatic and based on cash in the account. Withdrawing isn't possible but it still shows I have a $400 balance. Evolve bank is sending me $0.06 based on my balance because of the synapse bankruptcy. I'm just glad I moved most of the money I had in it to a different bank a few months before the issues started, I had 10k in it at one point.
It looks like the drawings are still happening and it says someone won 33k this month. That's gotta be bitter sweet. They won big but probably won't actually collect the prize considering it's not possible to withdraw. I wonder if they are going to have to pay taxes on that prize despite it not being accessible.
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.
Premium Bonds are quite a popular savings product especially in times of low savings interest. What I find interesting is that NS&I, being government backed guarantee the security of all money in their accounts across all products, well past the ~£80,000 obligation that banks have.
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.
“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
The current lack of collaboration between the banks makes it seem like they believe this too. The ones that had funds paid out already so they could avoid holding the bag. Whereas Evolve is the last one standing when the music stopped and is now taking the reputation hit.
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.
...Because there are no shady accountants or lawyers more motivated by a quick buck to be made, with the wherewithal to stay reasonably distant from anything blatantly capable of blowing back on them. Surely.
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.
Not sure what Yotta is like now (or was in 2023), but it used to be a very good rate. I think I opened my account in early 2020. Went back and checked my notes for details:
Every week, you would get a lottery ticket for every $25 in your account. In July 2020, expected value for a ticket was $.0227 ($.0157 if you exclude the jackpot, Tesla, and other top prizes that you were statistically unlikely to ever win). They also paid out a base APY of .20%, which was higher than savings accounts at a lot of big banks.
Adding those together, the APY came between 3.51% and 5.02%, which was good compared to most banks at the time. Over time they made changes which decreased the expected value of each ticket, I closed my account in 2021 when the rate was no longer competitive. Looks like I quit at the right time.
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.
Disgusting, infantilizing worldview. Fix the culture instead of chasing it. These imbecilic "behavioral economists" can't wait to live in a world where you get a Free* Grimace Shake with every root canal at participating McDonalds(R) McDentists™.
>Disgusting, infantilizing worldview. Fix the culture instead of chasing it.
Easier said than done. If you think it's so easy to change behavior, run an economics experiment to prove it. You'll probably even win a nobel prize. In the meantime, I'm going to support whatever actually works, rather than holding out for an ideal solution
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.
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.
For fucks sake, Nobody's comparing anything, I'm just replying to a guy who said "Most major banks did not offer such a rate in a generic mass market liquid savings product."
Just because there exists a few places you can get such interest rates doesn't make that an untrue statement.
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) 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.
A very common failure mode is for money to be commingled in an FBO account and improperly accounted for.
In that case the company setting up the account is responsible for accurately keeping track of whose money is whose. The bank will require occasional documentation that this can be done and the bank regulators will do very occasional audits, but generally speaking the bank is not on the hook for keeping track of whose money is whose in the big FBO bucket. But all of it is FDIC insured (up to the limits) in the face of bank failure.
It’s not insured in the face of the company failure or improper accounting.
This is an area where the European regulators are much stricter than American ones.
>In June, the FDIC made it clear that its insurance fund doesn’t cover the failure of nonbanks like Synapse, and that in the event of such a firm’s failure, recovering funds through the courts wasn’t guaranteed.
Apparently not FDIC insured, despite the advertising. How is a consumer supposed to know whether their money is with a true “bank” or with a “fintech”?
Edit Re-read your comment again and we are saying the same things
It's usually in the fine print of their website, something like "insolvency.io is not a bank, your funds are handled by <some bank you've never heard of>".
Yes, brokerages do this with your cash sweep funds, but they always name actual partner banks. I believe the issue here is those banks moved the funds into non-banks
> 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…
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.
No criminal charges have been filed yet because it's not yet clear where the money went or who could have stolen it. The Madoff case didn't have this element of mystery because there weren't multiple layers of intermediaries to muddle things, and because the case was blown open directly by Madoff's confession.
Law enforcement is eventually going to figure out the answers to these questions, since they are knowable if you dig deep enough; it's just that this takes time. And then I would bet there will be criminal charges.
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.
Yes but some of those databases are highly regulated and some are not, and the distinction between those (and in some cases deceptive advertising around it) is the crux of the issue here
> 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.
It depends. SOX compliance, if they were, actually literally does say the CFO and other officers who signed off on their accounting are liable. That’s the point of SOX. Synapse itself likely wasn’t unless it was preparing for IPO but their banking partners might be.
Their primary partner Evolve bank is not, but it is held to legal standards by the FDIC and other banking regulators and their lack of controls is probably where you might see executive management facing criminal challenges.
However everyone involved could face civil penalties.
If history had been different it’s likely this event would have turned up regulatory scrutiny on fintech precisely for these reasons - a privately held fintech can basically just fuck around and pretend to be a bank leveraging a poorly managed licensed partner holding the risk and abscond through incompetence with everyone’s money and no one suffer a consequence other than the customers. Sadly I don’t expect this to change in the next four years and there’s every reason to believe accountability will get worse as existing regulations and enforcement are potentially gutted. So caveat emptor is likely the law of the land until something so huge happens it can’t be ignored.
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 think you're absolutely on-point. There's literally no end to the amount of money they could innovate for themselves if we'd just let them do whatever the hell they want and then claim it's too confusing to figure out what happened when they steal it all. Won't someone think of the innovators?!
> 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.
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?
If you're a CEO running a business that sells what they call 'savings accounts' worth hundreds of millions of dollars and even have a system in place where it's even possible to make "'very large bulk transfers' of funds without identification of who owned the money" then you should be responsible for that. There's a good reason this doesn't happen at banks-- it can't. They have redundant business processes in place that prevent it from happening in the first place, and are constantly redundantly reconciling their transactions so if it does happen, it gets caught and corrected immediately. Not only did it happen, it happened without being able to figure out where the money even went.
Let's say I ran a company that made a product that I acknowledged is extremely dangerous without this one safety mechanism. Instead of creating multiple redundant systems to ensure that safety mechanism is in place, I just trust that some guy takes care of it without being absolutely certain-- it's expensive, annoying time consuming, blah blah blah. When a bunch of people get hurt because that guy pocketed the cash that was supposed to go towards that safety feature, hell yes I should be criminally responsible. It's negligence.
> 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
Sentencing? Who’s been charged? The article implied that regulatory bodies haven’t even raised an eyebrow— the parties are in mediation and synapse said they don’t even have enough money to audit their books, and are just sort of shrugging their shoulders about it. And doesn’t white collar crime need to be discouraged too? Probably even more so considering the scale of the impact? Hundreds of millions of dollars, uninsured. Maybe if the cops went around major metropolitan business districts frisking every middle aged person in upscale business casual attire with an expensive haircut to search for wire transfer receipts because they ‘met the description’ then extremely consequential white collar crime would be less frequent than it is.
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-...
I agree. But I think the issue is that the FDIC is providing pass through insurance but also now clarifying in an unexpected way, that only failures of the underlying bank trigger insurance coverage. It may be technically right but it has many implications that are negative. To the everyday person it’s also perverse that highly connected rich people, like VCs tied to SVB, can get their money protected beyond any insurance limit based on their power, but poor individuals just have zero influence.
That's not true in the US generally (FDIC "pass-through insurance" is a thing).
The problem here wasn't a lack of FDIC insurance, but rather a lack of record keeping that allowed attribution of insured balances to individual beneficiary account holders.
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)
the one simple one I can think of would be to specifically make depositor acknowledge “hey this is not FDIC ensured, do you want to proceed?”
probably still some percentage of people would fall for it and continue with the creation of an account but at least then this discussion here would be “stupid is as stupid does.”
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.
You mean how could someone possibly send their life savings into some bullshit lotto-ticket-account app? Especially when their interest rate is 20bps more than any real bank.
I don't think it's any different from people learning life lessons from all the crypto 10% weekly return schemes.
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.
Savings accounts are a lucrative and relatively sticky offering. Many higher-rate savings accounts offer two (or more) tiers of interest, with higher rates applying to months where the customer does not withdraw or otherwise move money out of the account.[ß] The incentives mean that the customer is encouraged to deposit money INTO the savings account, but not take it out. If you don't have a full banking license, all that money is float - and you can invest it accordingly. Your net is the spread.
If you do have a full banking license, you can then use some of that sticky float for loans and earn a bigger spread. From what I have learned, small short-term business loans tend to be particularly lucrative, because the default rates can be impressively low. Big banks don't typically want to deal with those types of loans because the absolute ROI is simply lost in the noise and overall they do not move the needle enough to make a difference.
ß: you get access to better deals with less limitations if you have enough money to qualify for premier (or better) banking. The threshold is approximately the amount where the bank's wealth management unit becomes interested in you. I've told my bank that my absolute ceiling for any ongoing management fees is 25 bps and will manage my personal retirement funds accordingly. As a result they don't bother me, and I simply keep my fraction of investments at that bank in sufficiently low-cost instruments. I'm happy to pay my ongoing, sufficiently low management fees to them for this privilege.
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.
> 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.
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.
> 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.
So every riot is an insurrection then. Do you personally use this word to describe the BLM riots in 2020? What about pro Palestine / anti Israel demonstrations in 2024 that involve blockades of airports and such?
No. A riot just a public disturbance involving uncontrollable mobs of people. The Jan 6 mob didn't break into an airport, they broke into the Capitol building overtly seeking to perform acts of violence against the government.
Not all political demonstrations are insurrections, of course. For example, demonstrations for Palestine, or against abortions, or for better worker's rights, or for women's rights — those are not insurrections because they are advocating for a specific cause, not the overthrow of government. If an anti-Israel demonstration turned into an armed mob that entered the White House or the Capitol seeking to bring about their demands with force, then it would be an insurrection.
Intent is important when discussing the meaning of words. Carrying a knife with the intent to chop carrots is not a crime, but carrying one with the intent to chop people is.
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.
I had several thousand dollars in Juno, which claimed to offer a high-yield, FDIC-insured savings account. When I originally joined, it had an attractive program for receiving cashback on purchases with several major companies, which drew in a lot of people. Although it wasn’t my main bank, I kept the money there for the good interest rate. In the end, I received $0 with the 'return of funds'.
> Synapse helped fintech startups like Yotta and Juno, which are not banks, offer checking accounts and debit cards
Surely this fails the duck test. How can you offer a checking account and avoid being regulated like a bank? No wonder Americans dont trust any institution, everything's a scam and nothing is what it seems.
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.
Yea, they seemed more professional in the past. There were big finance education youtube channels that were advertising it suggesting that the average prizes worked out to be higher than the interest on other high yield savings accounts. The first year I had money in it, that seemed to be true, but interest rates at other banks were going up and I moved most of the savings I had there to another bank.
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?
I opened an account with Yotta before they pivoted more heavily into the gambling aspects, because I wanted them to succeed and bring prize-linked savings account[0] into the mainstream. But I also wasn't born yesterday, so I'd only deposited money that I could afford to lose.
And lose I did: they were only able to recover less than a dollar. I'm not even going to bother claiming it.
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!)
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.)
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...
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.
Right but then they have to litigate every new fancy attempt to dodge the rules individually, and they don't have the staff or the funding for that.
The Supreme Court has, for decades, been carving down regulatory powers to only exactly cover explicit, specific, literal interpretations of confessional law, so now we get thousands of potential cases that amount to "Stop touching the customer's money" "I'm not touching it, the atoms in my hand are getting close enough to the money to affect it with atomic forces, but nothing can be truly described as touching anything, if you think about it."
Solid fundamental rules don't work if the Court takes every possible chance to redefine every single term to make them not apply.
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…
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.
It isn't the government's job to stop people from being stupid with their money. Go look at https://www.withyotta.com/. It is literally a gambling site. If people want to put their life savings in there then, well, that's on them.
Ponzi schemes have a well-defined definition, and it's simply not what these folks are doing. What these people are doing is putting people's savings in ordinary savings accounts, taking the interest earned, and then giving a random person everyone's interest once a month.
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-...
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.
Because Wise ends up operating in many jurisdictions like the EU they seem fairly heavily regulated. Their banking partners are also ones like GS and JPM, not necessarily built on a house of cards. They were also the cheapest/most effective way to move a large sum of money when I bought a place in the EU a couple of years ago.
With that said, I'm not sure I would have Wise as my only bank.
Mercury gives you DDA accounts at partner banks, we don't pool your money in a giant FBO account like Synapse. We also have a lot of Haskell nerds making sure our ledger is sound.
As someone who has been impacted by this - I've had over $21,000 stolen from me by these companies - I want to clarify a few misconceptions/questions I see in the comments:
1. "Why are you surprised you lost money, Yotta is a gambling site"
At the time I signed up with Yotta (2020), it was not the online casino that it appears to be today. I don't gamble. I don't own any crypto. I buy ETFs and keep my money in savings accounts.
Back in 2020, Yotta's tagline was "behavioral psychology to help people save" - they even used it in their Launch HN post[1]. Their site (at the time), mentioned "FDIC" six times ("100% free and FDIC insured") - and included their logo twice[2].
So I did not create an account expecting to get rich quick - I wanted to support a YC startup with an interesting idea (Premium Bonds), and fully expected my money to be protected by FDIC insurance.
2. "Why hasn't the FDIC done anything?"
The FDIC steps in to support failed banks - no member FDIC bank has failed here (as others have pointed out). Yotta is not a bank and never actually held any user funds. Synapse Financial, which is now going through bankruptcy court, is not a bank. Evolve Bank, which many believe is responsible for the shortfall (possibly as high as $96 million), is still operating normally.
It's unclear whether my money is even in an FDIC-insured bank. I signed up for a Yotta account, but Yotta had me transfer money to a routing number connected to Evolve. Although I never interacted with Synapse, they were the middleman behind the scenes, moving user funds between various banks (Evolve, Lineage, AMG, and American are the ones listed in the bankruptcy case so far). And with Synapse going bankrupt, all of the underlying banks are pointing fingers at each other as to who owes users what.
As to what regulator ought to step in, that's also unclear. The CFPB directed me to the Federal Reserve. The Federal Reserve directed me to the Federal Reserve Bank of St. Louis, whose jurisdiction Evolve Bank is in. As far as I can tell, the Federal Reserve Bank of St. Louis is asleep at the wheel. (My Representative and Senators, in case you were wondering, have been entirely unhelpful)
3. "Where is the money?"
Unfortunately, without regulators stepping in, it will likely take years of very expensive lawsuits to figure that out. Synapse was responsible for maintaining records of which user funds were held at which bank, and it's clear that they were an abject failure at doing this. The bankruptcy estate does not have enough money to fund a reconciliation (they estimate it will cost $3 million), meaning users like me are being given a shrug and no information on what actually happened to our money.
As far as I can tell, there are two scenarios here:
Scenario A: Synapse lost and/or stole it. In the aftermath of Synapse's bankruptcy, various efforts have been made to piece together its records. It's entirely possible that they incorrectly spent or transferred (or loaned the CEO[3]) user funds. Its former CEO is loudly calling out Evolve as the culprit on Twitter, and has apparently raised $11M for his next venture[4].
Scenario B: Evolve lost and/or stole it. During the bankruptcy process, Evolve has overpromised and underdelivered, has refused to cooperate with other banks in reconciling Synapse's bad data, and is currently telling users that while they may have had our money at some point, they currently don't (Evolve has claimed that they only have $0.83 of my $21,000), but are unable or unwilling to disclose where that money went.
From my perspective, it seems fairly simple: I transferred my money to a routing number connected with Evolve Bank, and at the very least Evolve should be able to tell me where that money went. The fact that they are even refusing to tell the fintechs (i.e. Yotta) what happened to their users' funds, IMO, seems to indicate that they're attempting to delay and stonewall returning funds to end users. For what it's worth, Yotta is currently suing Evolve, and has publicly pointed out that the founder of Evolve has been accused of cooking the books at a previous company[5].
At this point I'm pretty pessimistic about getting any meaningful amount of my money back. That amount isn't enough to justify getting a lawyer of my own, as legal fees would quickly eat up most (if not all) of it. And while class action suits might theoretically bring one or more institutions to justice, I'd likely get pennies on the dollar in terms of my own savings.
I don't know if there's a lesson to be learned in all this, other than to only ever bank with Bank of America, Chase, and Wells Fargo. At the very least, it's going to be a long time before I trust a fintech with my savings again.
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...
Nah, it just appeases bloodlust. The main reason why criminals commit crimes? Because they don't think they'll get caught.
Going arbitrarily draconian has limited returns at best, and escalates things at worst. (If the crime is punishable by death why on earth would they let witnesses live?) Compared to increasing the (perceived) odds of being caught.
To be clear, the comment I was responding to mentioned severe punishment; at no time did I promote the death penalty or any corporal punishment. "Skin in the game" simply means incentives and disincentives: if people can act behind the guise of an entity and without repercussions (privatizing benefits and socializing losses/detriments) then society ends up worse off.
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.
Should I be suspicious that Wealthfront Cash accounts will fail as well?
What about Fidelity Cash Management Accounts?
>Wealthfront isn’t a bank, but we work with partner banks to get you an industry-leading APY, the security of FDIC insurance, and a full array of fee-free, no-strings-attached checking features — all wrapped up into one label-defying package we call a Cash Account.
https://www.wealthfront.com/cash
>The Fidelity Cash Management Account is not a bank account. It is a brokerage account that allows you to spend, save, and invest. The account offers competitive rates as well as spending and money movement features including a free debit card, checkwriting, Bill Pay, and more.
https://www.fidelity.com/spend-save/fidelity-cash-management...
Just casually reading r/fidelity on Reddit (which is a subreddit run by Fidelity) would make me run fast and far from using their cash management account for anything. Widespread check fraud has caused Fidelity to be extremely cautious -- read slow -- in giving people access to checks they deposit into their CMAs. I'm not saying this is a bad thing, at least Fidelity is being cautious about taking care of their customers' money, but it's created a good deal of pain and anger for people who are depending on Fidelity for everyday banking-style transactions. I'll invest with Fidelity, but I prefer to keep my everyday money in a traditional bank or credit union.
if you have investments at fidelity you can just use the brokerage account as cash management. the brokerage account can access funds using a debit card and ACH just fine; I do still recommend opening a CMA for ATM fee reimbursements though.
none of these funds availability problems can happen if you have margin enabled; note that you won't pay any margin interest either as funds on hold are tradable immediately.
These could have similar issues with gaps in FDIC protections due to money is being “managed” by intermediaries or because of the type of account. Their fine print discloses as much.
As a sibling comment points out, Fidelity is seemingly a reputable enterprise with other business that would be adversely effected by poor management of this product and the reputation harm that would come with it.
Among other features Wealthfront are trying to manage around the $250K FDIC limit for you by moving your money into multiple insured accounts - this is probably a new area with not enough regulation.
Any comment on what issues there are with paying somebody to open accounts for you with, I assume- a power of attorney allowing them to do explicitly that?
At that point the only thing at risk is fraudulent use of said POA, and whatever funds are held outside of actual accounts.
> At that point the only thing at risk is fraudulent use of said POA, and whatever funds are held outside of actual accounts
Which exactly the reason why the FDIC didn't intervene in the article: the Fintech startup didn't deposit the unaccounted(!) millions of customer funds into FDIC-insured accounts. The law should be tightened up to prohibit claims of FDIC protection without meeting the reporting and deposit process requirements.
The two scenarios: 1) handing a business your life savings to manage, a 2) authorizing a company to manage your finances so they're in FDIC insured accounts
Are completely different. There's no laws to update, and the FDIC isn't skittering out of paying on a technicality.
And, frankly, if anybody reading this is looking at option #2- do yourself a favor and get an accountant and a wealth manager that both have fiduciary duties. Might as well find a lawyer as well.
Fidelity is very regulated, and large. If something happened it would be a systemic event that the government would definitely get involved. Wealthfront may be fine too, I just don't know.
To put it differently, Yotta’s customer’s misfortunes are because they are poor and not politically connected. If Fidelity fails, their customers are rich and they vote: they must be made whole.
Kind of like the SVB failure. SVB customers were made whole. Systematic risk and all that.
Fidelity’s brokerage business would be covered by SIPC, which would include its cash management accounts. They also likely sweep cash out to FDIC-insured accounts. More importantly though, Fidelity is large enough that you’re unlikely to need that insurance, and that’s really how I’d prefer to approach this.
Yeah we can look at 2008 and say no institution is safe, but if there’s risk everywhere, I’ve just got to try and minimize that as best I can. Fidelity didn’t give me any sort of scare that year fwiw. Disclosure: I’ve been using Fidelity for basically all of my money for most of my career now, including cash management.
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...
Is this a job for regulators or just criminal prosecution? Sounds like step (b) is either fraud or not, depending on how the trumpeting gets done.
Criminal prosecution only works on poor people.
Crimes where the individual is elected president or just gets rich don't do anything of merit.
Unfortunately, the kleptomaniacs are in charge.
Please try again in 4 years
>These scams will continue until regulators get serious about putting people in jail for them.
Which is so much more likely under turmp.
It used to be I could be sure this was sarcasm. I miss those days.
Just seeing the phrase 'financial technology company' is a red flag.
Plaid is a financial technology company and many HNers are happy to hand over their account passwords to them for storage in cleartext.
I'd still consider Plaid a red flag. ;)
Could you elaborate? Red flag because of risk due to using Plaid, what it says about the fintech or something else?
Not parent but, what about this does not scream red bloody flag to you?
Give my banking password to some other company? That's a red bloody flag right there. Stop the presses. Nobody should ever do that. Not outside of very specific use cases like a password manager and in that case there better be seventeen million levels of encryption and such in place. Did we mention the color red? On a flag? I think we did. Cleartext, eh? Who thought this was a good idea?Storage in cleartext would indeed be a huge red flag, but Plaid says they store it encrypted and I've seen no evidence that they are wrong about that.
That still might be a red flag but not as big a red flag. Cleartext means a database leak would leaks passwords. Encrypted, if done right, would mean a database leak would not leak passwords.
Can you share a link that describes what exactly they do?
What I would expect to be table stakes is that they only ever have an encrypted version of the data on their end (like a password manager) and that the encryption key is stored on my machine or if on their side that it by itself is protected by a passphrase that I have to enter each time plaid needs to do something. If we are talking storing the clear text password somehow coz they use screen scraping to implement their features for some banks.
All I find on their site (casually looking) is marketing fluff.
Also really I would expect that they never even need my password at all and that instead they have a proper API between them and the bank(s) where I authorize specific scopes only (preferably read only scoping being available) and my password stays with me and if something bad were to ever be done with a write scoped token from Plaid it would be traceable to their token authorizing it and they would be liable. When I give them my password they basically get full monetary power of attorney and the bank would always fault me ("we can see you logged in with your user and password. We tell you to keep your password/PIN secure and to never share it. Sorry, money gone".
Here's what they say they do [1].
[1] https://support-my.plaid.com/hc/en-us/articles/4410324401047...
Relevant section for the "we do store your password" case:
Meaning exactly nothing. "encryption protocols" may simply mean that when they log in to screen scrape your bank's online banking they do so over HTTPS.Sorry but this has zero meaning and I maintain: Red bloody flag. If there's any actual proof out there of them doing all this in a secure way, I'm happy to have my mind changed but this is just part of said marketing fluff.
Like Synapse, this sounds like the "put all your eggs in our digital basket" style of fintech "disruption" is bound to blow up in the faces of everyone involved.
Yep, that's what I was meaning.
Square, Stripe, Cash App, Venmo, Paypal, etc...
> Banking services provided by Evolve Bank & Trust and Thread Bank; Members FDIC.”
I just don't understand why on Earth it's legal to use the term "FDIC" one sentence away from "not a bank" without there being a regulatory framework defining minimum record keeping and reporting requirements to avoid exactly this type of failure.
The European "e-money" scheme seems to be exactly the opposite: Deposits are not insured (I believe there are requirements on the stability of the depository bank), but intermediaries, i.e. "financial technology companies", have to make detailed reports about their customers' balances available on a very short time frame to avoid exactly such problems.
Ideally, there would be a combination of both (pass-through insurance against bank failure and reporting requirements to reduce the blast radius of non-bank failure).
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...
> 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
This is what scares me. I use Betterment for everything, which strikes me as a much more legitimate company, but it follows the same model where accounts are "FDIC insured" by being distributed among various bank partners. I always thought that meant it was safe if the company had troubles, but it seems not.
I don’t think Betterment distributes funds to centralized accounts like Synapse does, it establishes accounts in your name at those partner banks and provides a unified interface over those funds. You can do the same thing yourself by going to each bank individually and opening up accounts manually, but then you’d have to deal with KYC for each one and their online banking interfaces of varying quality. That’s how they get their $2 million insurance number, since they open accounts at 8 banks and FDIC insures $250k per account.
That was my understanding when I looked into Betterment Cash Reserve (I ended up just going the manual route because I’m paranoid).
Good to know! Yeah I guess that's the inverse of the OP: one account spread to multiple bank accounts vs multiple accounts dumped into one bank account
> every time you deposited to savings you would get a free lotto ticket for the month based on how much you deposited
reminds me of a payment scheme someone in Poland described about getting a car on 'lottery', where every month one person 'won' the rest of their payments paid off as the prize, while the 'worst loser' paid twice the price of the car? i was pretty young so i'm sure i'm missing the details
I've had an account with them. It looks like in March they quit giving automatic tickets monthly based on funds. Now the app looks much more like a casino, with other games and a separate yottacash balance for playing games including the lottery that use to be automatic and based on cash in the account. Withdrawing isn't possible but it still shows I have a $400 balance. Evolve bank is sending me $0.06 based on my balance because of the synapse bankruptcy. I'm just glad I moved most of the money I had in it to a different bank a few months before the issues started, I had 10k in it at one point.
It looks like the drawings are still happening and it says someone won 33k this month. That's gotta be bitter sweet. They won big but probably won't actually collect the prize considering it's not possible to withdraw. I wonder if they are going to have to pay taxes on that prize despite it not being accessible.
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.
tbf the UK government does the same thing: https://en.wikipedia.org/wiki/Premium_Bonds
Premium Bonds are quite a popular savings product especially in times of low savings interest. What I find interesting is that NS&I, being government backed guarantee the security of all money in their accounts across all products, well past the ~£80,000 obligation that banks have.
> 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.
Probably whoever gets it the longest just failed to properly reinvest their ill gotten funds into legal advice.
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.
“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
The current lack of collaboration between the banks makes it seem like they believe this too. The ones that had funds paid out already so they could avoid holding the bag. Whereas Evolve is the last one standing when the music stopped and is now taking the reputation hit.
In finance the usual rule is flipped, and you should never attribute to incompetence that which can be explained by greed.
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.
...Because there are no shady accountants or lawyers more motivated by a quick buck to be made, with the wherewithal to stay reasonably distant from anything blatantly capable of blowing back on them. Surely.
So then you are saying it -was- Malfeasance?
So I guess we agree then. Welcome to the dark side.
> 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.
Not sure what Yotta is like now (or was in 2023), but it used to be a very good rate. I think I opened my account in early 2020. Went back and checked my notes for details:
Every week, you would get a lottery ticket for every $25 in your account. In July 2020, expected value for a ticket was $.0227 ($.0157 if you exclude the jackpot, Tesla, and other top prizes that you were statistically unlikely to ever win). They also paid out a base APY of .20%, which was higher than savings accounts at a lot of big banks.
Adding those together, the APY came between 3.51% and 5.02%, which was good compared to most banks at the time. Over time they made changes which decreased the expected value of each ticket, I closed my account in 2021 when the rate was no longer competitive. Looks like I quit at the right time.
>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
Disgusting, infantilizing worldview. Fix the culture instead of chasing it. These imbecilic "behavioral economists" can't wait to live in a world where you get a Free* Grimace Shake with every root canal at participating McDonalds(R) McDentists™.
>Disgusting, infantilizing worldview. Fix the culture instead of chasing it.
Easier said than done. If you think it's so easy to change behavior, run an economics experiment to prove it. You'll probably even win a nobel prize. In the meantime, I'm going to support whatever actually works, rather than holding out for an ideal solution
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.)
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.
Exactly, lots of people “lose” their savings in Vegas every day.
> 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.
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.
For fucks sake, Nobody's comparing anything, I'm just replying to a guy who said "Most major banks did not offer such a rate in a generic mass market liquid savings product."
Just because there exists a few places you can get such interest rates doesn't make that an untrue statement.
This was a high yield savings account. They allowed some withdrawals at any time. No minimum balance but I can’t remember for sure.
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.
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
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 default CMA cash position can be a money market now, so you dont need to move things around to get the better rate.
> 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.
I wouldn't call them "being upfront" at all.
They promote their savings accounts with opening bonuses, offer bonus rates for high net worth account holders (up to 0.04% instead of 0.01!!) etc.
Transparency would be not calling these terrible offers "savings" accounts (or sometimes even "high-yield savings accounts!") in the first place.
People should just dump their cash savings into brokerage accounts and buy SGOV. It's even mostly state tax free.
I watched some YouTube videos that said it was a bank app (sort of) before changing to gambling.
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.
A very common failure mode is for money to be commingled in an FBO account and improperly accounted for.
In that case the company setting up the account is responsible for accurately keeping track of whose money is whose. The bank will require occasional documentation that this can be done and the bank regulators will do very occasional audits, but generally speaking the bank is not on the hook for keeping track of whose money is whose in the big FBO bucket. But all of it is FDIC insured (up to the limits) in the face of bank failure.
It’s not insured in the face of the company failure or improper accounting.
This is an area where the European regulators are much stricter than American ones.
Yeah, it seems there should be equally strict regulations on whatever entity is managing the FBO.
>In June, the FDIC made it clear that its insurance fund doesn’t cover the failure of nonbanks like Synapse, and that in the event of such a firm’s failure, recovering funds through the courts wasn’t guaranteed.
Apparently not FDIC insured, despite the advertising. How is a consumer supposed to know whether their money is with a true “bank” or with a “fintech”?
Edit Re-read your comment again and we are saying the same things
It's usually in the fine print of their website, something like "insolvency.io is not a bank, your funds are handled by <some bank you've never heard of>".
Yes, brokerages do this with your cash sweep funds, but they always name actual partner banks. I believe the issue here is those banks moved the funds into non-banks
> 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.
yeah, surely if 60 Minutes or someone does a large scale report on this it would cave a16z into taking care of the mess they helped cause
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...
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.
So all I need to get away with a $90 million Ponzi scheme is declare bankruptcy and then claim I can't afford an accountant?
Bernie Madoff is rolling in his grave, his plan was just to die before getting caught.
No criminal charges have been filed yet because it's not yet clear where the money went or who could have stolen it. The Madoff case didn't have this element of mystery because there weren't multiple layers of intermediaries to muddle things, and because the case was blown open directly by Madoff's confession.
Law enforcement is eventually going to figure out the answers to these questions, since they are knowable if you dig deep enough; it's just that this takes time. And then I would bet there will be criminal charges.
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.
Yes but some of those databases are highly regulated and some are not, and the distinction between those (and in some cases deceptive advertising around it) is the crux of the issue here
I’m willing to wager that there is money actually missing.
It's very difficult to make money disappear in the US system without getting caught eventually.
> 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.
It depends. SOX compliance, if they were, actually literally does say the CFO and other officers who signed off on their accounting are liable. That’s the point of SOX. Synapse itself likely wasn’t unless it was preparing for IPO but their banking partners might be.
Their primary partner Evolve bank is not, but it is held to legal standards by the FDIC and other banking regulators and their lack of controls is probably where you might see executive management facing criminal challenges.
However everyone involved could face civil penalties.
If history had been different it’s likely this event would have turned up regulatory scrutiny on fintech precisely for these reasons - a privately held fintech can basically just fuck around and pretend to be a bank leveraging a poorly managed licensed partner holding the risk and abscond through incompetence with everyone’s money and no one suffer a consequence other than the customers. Sadly I don’t expect this to change in the next four years and there’s every reason to believe accountability will get worse as existing regulations and enforcement are potentially gutted. So caveat emptor is likely the law of the land until something so huge happens it can’t be ignored.
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 think you're absolutely on-point. There's literally no end to the amount of money they could innovate for themselves if we'd just let them do whatever the hell they want and then claim it's too confusing to figure out what happened when they steal it all. Won't someone think of the innovators?!
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.
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?
If you're a CEO running a business that sells what they call 'savings accounts' worth hundreds of millions of dollars and even have a system in place where it's even possible to make "'very large bulk transfers' of funds without identification of who owned the money" then you should be responsible for that. There's a good reason this doesn't happen at banks-- it can't. They have redundant business processes in place that prevent it from happening in the first place, and are constantly redundantly reconciling their transactions so if it does happen, it gets caught and corrected immediately. Not only did it happen, it happened without being able to figure out where the money even went.
Let's say I ran a company that made a product that I acknowledged is extremely dangerous without this one safety mechanism. Instead of creating multiple redundant systems to ensure that safety mechanism is in place, I just trust that some guy takes care of it without being absolutely certain-- it's expensive, annoying time consuming, blah blah blah. When a bunch of people get hurt because that guy pocketed the cash that was supposed to go towards that safety feature, hell yes I should be criminally responsible. It's negligence.
> 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
Sentencing? Who’s been charged? The article implied that regulatory bodies haven’t even raised an eyebrow— the parties are in mediation and synapse said they don’t even have enough money to audit their books, and are just sort of shrugging their shoulders about it. And doesn’t white collar crime need to be discouraged too? Probably even more so considering the scale of the impact? Hundreds of millions of dollars, uninsured. Maybe if the cops went around major metropolitan business districts frisking every middle aged person in upscale business casual attire with an expensive haircut to search for wire transfer receipts because they ‘met the description’ then extremely consequential white collar crime would be less frequent than it is.
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-...
I mean the FDIC is an insurance program, if it extends insurance to entities that haven't bought in their risk profile changes.
I agree. But I think the issue is that the FDIC is providing pass through insurance but also now clarifying in an unexpected way, that only failures of the underlying bank trigger insurance coverage. It may be technically right but it has many implications that are negative. To the everyday person it’s also perverse that highly connected rich people, like VCs tied to SVB, can get their money protected beyond any insurance limit based on their power, but poor individuals just have zero influence.
That's not true in the US generally (FDIC "pass-through insurance" is a thing).
The problem here wasn't a lack of FDIC insurance, but rather a lack of record keeping that allowed attribution of insured balances to individual beneficiary account holders.
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.
Put differently:
Less than zero: trust to place in random fintech company
Zero: trust to place in random bank
Very low value: trust to place in a carefully selected bank
Moderate value: trust to place in FDIC
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.
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.
Is terrorism not already an easily prosecutable offense?
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"?
the one simple one I can think of would be to specifically make depositor acknowledge “hey this is not FDIC ensured, do you want to proceed?”
probably still some percentage of people would fall for it and continue with the creation of an account but at least then this discussion here would be “stupid is as stupid does.”
One could make a regulation that account data cannot be lumped.
Sounding edgy doesn't really mask the fact you have no idea what you're talking about. See https://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street... for example
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.
JC Penney's problems went considerably further than whether they did or did not run an "80% OFF" sale.
True, but the ending of "80% off" style sales was a very visible problem for them.
You mean how could someone possibly send their life savings into some bullshit lotto-ticket-account app? Especially when their interest rate is 20bps more than any real bank.
I don't think it's any different from people learning life lessons from all the crypto 10% weekly return schemes.
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.
> I don't know what a de-facto bank is.
Here's an example from just a couple of days ago.
https://9to5mac.com/2024/11/21/apple-will-now-be-treated-lik...
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.
Savings accounts are a lucrative and relatively sticky offering. Many higher-rate savings accounts offer two (or more) tiers of interest, with higher rates applying to months where the customer does not withdraw or otherwise move money out of the account.[ß] The incentives mean that the customer is encouraged to deposit money INTO the savings account, but not take it out. If you don't have a full banking license, all that money is float - and you can invest it accordingly. Your net is the spread.
If you do have a full banking license, you can then use some of that sticky float for loans and earn a bigger spread. From what I have learned, small short-term business loans tend to be particularly lucrative, because the default rates can be impressively low. Big banks don't typically want to deal with those types of loans because the absolute ROI is simply lost in the noise and overall they do not move the needle enough to make a difference.
ß: you get access to better deals with less limitations if you have enough money to qualify for premier (or better) banking. The threshold is approximately the amount where the bank's wealth management unit becomes interested in you. I've told my bank that my absolute ceiling for any ongoing management fees is 25 bps and will manage my personal retirement funds accordingly. As a result they don't bother me, and I simply keep my fraction of investments at that bank in sufficiently low-cost instruments. I'm happy to pay my ongoing, sufficiently low management fees to them for this privilege.
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.
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-...
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.
Much like with cybersecurity incidents. Regulators haven’t acted and they keep happening.
>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.
> 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.
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.
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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.
> 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.
So every riot is an insurrection then. Do you personally use this word to describe the BLM riots in 2020? What about pro Palestine / anti Israel demonstrations in 2024 that involve blockades of airports and such?
No. A riot just a public disturbance involving uncontrollable mobs of people. The Jan 6 mob didn't break into an airport, they broke into the Capitol building overtly seeking to perform acts of violence against the government.
Not all political demonstrations are insurrections, of course. For example, demonstrations for Palestine, or against abortions, or for better worker's rights, or for women's rights — those are not insurrections because they are advocating for a specific cause, not the overthrow of government. If an anti-Israel demonstration turned into an armed mob that entered the White House or the Capitol seeking to bring about their demands with force, then it would be an insurrection.
Intent is important when discussing the meaning of words. Carrying a knife with the intent to chop carrots is not a crime, but carrying one with the intent to chop people is.
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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.
Because rich people got richer, which is always ok
I had several thousand dollars in Juno, which claimed to offer a high-yield, FDIC-insured savings account. When I originally joined, it had an attractive program for receiving cashback on purchases with several major companies, which drew in a lot of people. Although it wasn’t my main bank, I kept the money there for the good interest rate. In the end, I received $0 with the 'return of funds'.
> Synapse helped fintech startups like Yotta and Juno, which are not banks, offer checking accounts and debit cards
Surely this fails the duck test. How can you offer a checking account and avoid being regulated like a bank? No wonder Americans dont trust any institution, everything's a scam and nothing is what it seems.
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.
Yea, they seemed more professional in the past. There were big finance education youtube channels that were advertising it suggesting that the average prizes worked out to be higher than the interest on other high yield savings accounts. The first year I had money in it, that seemed to be true, but interest rates at other banks were going up and I moved most of the savings I had there to another bank.
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?
lately there has been an increase in scammy yc startups
I opened an account with Yotta before they pivoted more heavily into the gambling aspects, because I wanted them to succeed and bring prize-linked savings account[0] into the mainstream. But I also wasn't born yesterday, so I'd only deposited money that I could afford to lose.
And lose I did: they were only able to recover less than a dollar. I'm not even going to bother claiming it.
[0] https://en.wikipedia.org/wiki/Prize-linked_savings_account
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!)
Where did the money go?
- Was it all deposited in a real bank
- Was it siphoned by the app to pay their expenses
- We're there Office Space like shenanigans going on
Seems like either something illegal was happening, or the money is somewhere and unaccountable.
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...
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...
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.
Right but then they have to litigate every new fancy attempt to dodge the rules individually, and they don't have the staff or the funding for that.
The Supreme Court has, for decades, been carving down regulatory powers to only exactly cover explicit, specific, literal interpretations of confessional law, so now we get thousands of potential cases that amount to "Stop touching the customer's money" "I'm not touching it, the atoms in my hand are getting close enough to the money to affect it with atomic forces, but nothing can be truly described as touching anything, if you think about it."
Solid fundamental rules don't work if the Court takes every possible chance to redefine every single term to make them not apply.
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…
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.
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.
It isn't the government's job to stop people from being stupid with their money. Go look at https://www.withyotta.com/. It is literally a gambling site. If people want to put their life savings in there then, well, that's on them.
Look at the site in 2020, when many of those people signed up:
https://web.archive.org/web/20200630201639/https://www.withy...
The idea was just an online bank that paid interest on savings in the form of raffle tickets.
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?
Ponzi schemes have a well-defined definition, and it's simply not what these folks are doing. What these people are doing is putting people's savings in ordinary savings accounts, taking the interest earned, and then giving a random person everyone's interest once a month.
Kinda feels like Synapse was really just a fancy money laundering operation.
Uh-oh, this really shakes my confidence in fintech neobanks like Mercury, Wise, Revolut and the lot.
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-...
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...
Because Wise ends up operating in many jurisdictions like the EU they seem fairly heavily regulated. Their banking partners are also ones like GS and JPM, not necessarily built on a house of cards. They were also the cheapest/most effective way to move a large sum of money when I bought a place in the EU a couple of years ago.
With that said, I'm not sure I would have Wise as my only bank.
Mercury gives you DDA accounts at partner banks, we don't pool your money in a giant FBO account like Synapse. We also have a lot of Haskell nerds making sure our ledger is sound.
(not speaking on behalf of my employer)
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.
Revolut are a real bank, at least in Europe, and all funds in it are protected by the relevant country's banking fund.
Juno gave clear indication it was a savings account, FDIC insured deposits, etc
As someone who has been impacted by this - I've had over $21,000 stolen from me by these companies - I want to clarify a few misconceptions/questions I see in the comments:
1. "Why are you surprised you lost money, Yotta is a gambling site"
At the time I signed up with Yotta (2020), it was not the online casino that it appears to be today. I don't gamble. I don't own any crypto. I buy ETFs and keep my money in savings accounts.
Back in 2020, Yotta's tagline was "behavioral psychology to help people save" - they even used it in their Launch HN post[1]. Their site (at the time), mentioned "FDIC" six times ("100% free and FDIC insured") - and included their logo twice[2].
So I did not create an account expecting to get rich quick - I wanted to support a YC startup with an interesting idea (Premium Bonds), and fully expected my money to be protected by FDIC insurance.
2. "Why hasn't the FDIC done anything?"
The FDIC steps in to support failed banks - no member FDIC bank has failed here (as others have pointed out). Yotta is not a bank and never actually held any user funds. Synapse Financial, which is now going through bankruptcy court, is not a bank. Evolve Bank, which many believe is responsible for the shortfall (possibly as high as $96 million), is still operating normally.
It's unclear whether my money is even in an FDIC-insured bank. I signed up for a Yotta account, but Yotta had me transfer money to a routing number connected to Evolve. Although I never interacted with Synapse, they were the middleman behind the scenes, moving user funds between various banks (Evolve, Lineage, AMG, and American are the ones listed in the bankruptcy case so far). And with Synapse going bankrupt, all of the underlying banks are pointing fingers at each other as to who owes users what.
As to what regulator ought to step in, that's also unclear. The CFPB directed me to the Federal Reserve. The Federal Reserve directed me to the Federal Reserve Bank of St. Louis, whose jurisdiction Evolve Bank is in. As far as I can tell, the Federal Reserve Bank of St. Louis is asleep at the wheel. (My Representative and Senators, in case you were wondering, have been entirely unhelpful)
3. "Where is the money?"
Unfortunately, without regulators stepping in, it will likely take years of very expensive lawsuits to figure that out. Synapse was responsible for maintaining records of which user funds were held at which bank, and it's clear that they were an abject failure at doing this. The bankruptcy estate does not have enough money to fund a reconciliation (they estimate it will cost $3 million), meaning users like me are being given a shrug and no information on what actually happened to our money.
As far as I can tell, there are two scenarios here:
Scenario A: Synapse lost and/or stole it. In the aftermath of Synapse's bankruptcy, various efforts have been made to piece together its records. It's entirely possible that they incorrectly spent or transferred (or loaned the CEO[3]) user funds. Its former CEO is loudly calling out Evolve as the culprit on Twitter, and has apparently raised $11M for his next venture[4].
Scenario B: Evolve lost and/or stole it. During the bankruptcy process, Evolve has overpromised and underdelivered, has refused to cooperate with other banks in reconciling Synapse's bad data, and is currently telling users that while they may have had our money at some point, they currently don't (Evolve has claimed that they only have $0.83 of my $21,000), but are unable or unwilling to disclose where that money went.
From my perspective, it seems fairly simple: I transferred my money to a routing number connected with Evolve Bank, and at the very least Evolve should be able to tell me where that money went. The fact that they are even refusing to tell the fintechs (i.e. Yotta) what happened to their users' funds, IMO, seems to indicate that they're attempting to delay and stonewall returning funds to end users. For what it's worth, Yotta is currently suing Evolve, and has publicly pointed out that the founder of Evolve has been accused of cooking the books at a previous company[5].
At this point I'm pretty pessimistic about getting any meaningful amount of my money back. That amount isn't enough to justify getting a lawyer of my own, as legal fees would quickly eat up most (if not all) of it. And while class action suits might theoretically bring one or more institutions to justice, I'd likely get pennies on the dollar in terms of my own savings.
I don't know if there's a lesson to be learned in all this, other than to only ever bank with Bank of America, Chase, and Wells Fargo. At the very least, it's going to be a long time before I trust a fintech with my savings again.
[1] https://news.ycombinator.com/item?id=23780062 [2] https://web.archive.org/web/20200709141034/https://www.withy... [3] https://www.linkedin.com/posts/jasonmikula_new-as-synapse-wa... [4] https://techcrunch.com/2024/08/22/founder-of-failed-fintech-... [5] https://www.plansponsor.com/ncfc-subsidiaries-accused-of-coo...
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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.
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."
don't word it like that! it should be a punishment that sufficiently discourages repetition
Skin in the game prevents a lot of problems.
Nah, it just appeases bloodlust. The main reason why criminals commit crimes? Because they don't think they'll get caught. Going arbitrarily draconian has limited returns at best, and escalates things at worst. (If the crime is punishable by death why on earth would they let witnesses live?) Compared to increasing the (perceived) odds of being caught.
To be clear, the comment I was responding to mentioned severe punishment; at no time did I promote the death penalty or any corporal punishment. "Skin in the game" simply means incentives and disincentives: if people can act behind the guise of an entity and without repercussions (privatizing benefits and socializing losses/detriments) then society ends up worse off.