[HN Gopher] Americans see their savings vanish in Synapse fintec...
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Americans see their savings vanish in Synapse fintech crisis
Author : hunter2_
Score : 207 points
Date : 2024-11-23 05:44 UTC (17 hours ago)
(HTM) web link (www.cnbc.com)
(TXT) w3m dump (www.cnbc.com)
| treetalker wrote:
| Trust me, bro.
| matwood wrote:
| 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?
| grecy wrote:
| Because rich people got richer, which is always ok
| UltraSane wrote:
| Because they only stole from poor people who can't lobby. The
| article even quotes someone saying as much.
| xvector wrote:
| We really oughta institute the death penalty for execs involved
| in shit like this.
| throwaway14356 wrote:
| don't word it like that! it should be a punishment that
| sufficiently discourages repetition
| treetalker wrote:
| Skin in the game prevents a lot of problems.
| Ekaros wrote:
| 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.
| netsharc wrote:
| 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...
| MathMonkeyMan wrote:
| "This was the story of Howard Beale: the first known instance
| of a man who was killed because he had lousy ratings."
| gruez wrote:
| Surely you'd also support the death penalty for developers that
| cause multi-million dollar bugs?
| ProjectArcturis wrote:
| Bugs are unintentional. This was massive intentional theft.
| gruez wrote:
| 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.
| dexter0 wrote:
| > 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.
| la64710 wrote:
| How is this possible in USA?
| bboygravity wrote:
| 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.
| jpoesen wrote:
| Decades of deregulation. More to come.
| gruez wrote:
| What specific regulation would have prevented this? Or is
| this just a knee jerk response against "deregulation"?
| pxmpxm wrote:
| Sounding edgy doesn't really mask the fact you have no idea
| what you're talking about. See https://en.wikipedia.org/wik
| i/Dodd%E2%80%93Frank_Wall_Street... for example
| highcountess wrote:
| 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.
| jmclnx wrote:
| 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.
| PaulDavisThe1st wrote:
| JC Penney's problems went considerably further than
| whether they did or did not run an "80% OFF" sale.
| pxmpxm wrote:
| 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.
| chefandy wrote:
| 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.
| dehrmann wrote:
| 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.
| Super_Jambo wrote:
| 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.
| suzzer99 wrote:
| I'd bet 95% of fintech startups are just walking moral
| hazards to begin with.
| JumpCrisscross wrote:
| > _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.
| cool_dude85 wrote:
| 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.
| sofixa wrote:
| 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.
| stefan_ wrote:
| 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?
| fnordpiglet wrote:
| 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.
| csomar wrote:
| > 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.
| fragmede wrote:
| For $96 million, I would be a flight risk.
| hedvig23 wrote:
| >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
| HeavenFox wrote:
| 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?
| nradov wrote:
| There's generally nothing stopping scammers from lying in
| ads. Enforcement is only done afterwards.
| hunter2_ wrote:
| 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.
| cperciva wrote:
| It serves the same purpose as asking customers "are you a
| terrorist" -- it creates an easily prosecutable offence.
| stoperaticless wrote:
| 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)
| rjsw wrote:
| If you ask it online then I guess it counts as wire fraud
| which may be easier to prosecute.
| dooglius wrote:
| Is terrorism not already an easily prosecutable offense?
| teeray wrote:
| It should be a protected term in advertising. As soon as
| you use it, you surrender yourself to FDIC auditors.
| dougSF70 wrote:
| 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.
| suzzer99 wrote:
| That's batshit insane.
| arpinum wrote:
| 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.
| blackeyeblitzar wrote:
| 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-...
| BobaFloutist wrote:
| I mean the FDIC is an insurance program, if it extends
| insurance to entities that haven't bought in their risk
| profile changes.
| blackeyeblitzar wrote:
| 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.
| Yeul wrote:
| The whole point of banking that people have forgotten is
| trust.
| nikanj wrote:
| Large banks have gone to great lengths to teach people that
| banks can never be trusted
| JohnFen wrote:
| I trust them a whole lot more than any random fintech
| company. At least with traditional banks, there is some
| amount of protection available.
| PaulDavisThe1st wrote:
| 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
| simpaticoder wrote:
| 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.
| blackeyeblitzar wrote:
| Much like with cybersecurity incidents. Regulators haven't
| acted and they keep happening.
| PittleyDunkin wrote:
| > 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.
| zug_zug wrote:
| 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.
| teeray wrote:
| 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.
| PittleyDunkin wrote:
| 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.
| geor9e wrote:
| 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.
| nytesky wrote:
| 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?
| sofixa wrote:
| 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.
| matwood wrote:
| 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.
| bostik wrote:
| 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.
| mst wrote:
| 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.
| UglyToad wrote:
| 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-...
| Dalewyn wrote:
| >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.
| simpaticoder wrote:
| 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.
| ksynwa wrote:
| 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.
| mst wrote:
| 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.
| ksynwa wrote:
| 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.wi
| thy...
| sgerenser wrote:
| Proudly displaying the Y Combinator logo right there on the
| home page.
| KyleJune wrote:
| 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.
| binary_slinger wrote:
| 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...
| wiradikusuma wrote:
| I watched some YouTube videos that said it was a bank app (sort
| of) before changing to gambling.
| comex wrote:
| "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.
| dehrmann wrote:
| > 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.
| gruez wrote:
| >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
| FactKnower69 wrote:
| 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(tm).
| gruez wrote:
| >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
| K0balt wrote:
| 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.
| zaphar wrote:
| 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.
| K0balt wrote:
| 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.
| zaphar wrote:
| 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.
| K0balt wrote:
| 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.
| salawat wrote:
| ...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.
| UltraSane wrote:
| 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.
| IggleSniggle wrote:
| 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
| anon84873628 wrote:
| 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.
| UltraSane wrote:
| In finance the usual rule is flipped, and you should
| never attribute to incompetence that which can be
| explained by greed.
| suzzer99 wrote:
| 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.
| blackeyeblitzar wrote:
| > 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.
| atombender wrote:
| Marcus (Goldman Sachs) high yield savings was 4.50% until
| revenetly. EverBank is at 4.75% right now. These are normal
| savings accounts.
| blackeyeblitzar wrote:
| 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.
| atombender wrote:
| 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.
| JumpCrisscross wrote:
| 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...
| ac29 wrote:
| The default CMA cash position can be a money market now,
| so you dont need to move things around to get the better
| rate.
| Dalewyn wrote:
| 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
| JumpCrisscross wrote:
| > _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.
| iandanforth wrote:
| How does Everbank offer rates above the fed rate?
| Wealthfront offers good rates but they track the fed rate
| pretty closely.
| atombender wrote:
| 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.
| astura wrote:
| 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.
| mint2 wrote:
| 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.
| astura wrote:
| 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.
| binary_slinger wrote:
| This was a high yield savings account. They allowed some
| withdrawals at any time. No minimum balance but I can't
| remember for sure.
| a_dabbler wrote:
| 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...
| mrec wrote:
| Looks exactly like Premium Bonds here in the UK. (Winnings on
| those are also tax free, not sure if yours are the same.)
| Junk_Collector wrote:
| 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.
| rubyfan wrote:
| > 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.
| intelVISA wrote:
| Just seeing the phrase 'financial technology company' is a
| red flag.
| kevin_thibedeau wrote:
| Plaid is a financial technology company and many HNers
| are happy to hand over their account passwords to them
| for storage in cleartext.
| BenjiWiebe wrote:
| I'd still consider Plaid a red flag. ;)
| rubyfan wrote:
| Could you elaborate? Red flag because of risk due to
| using Plaid, what it says about the fintech or something
| else?
| bdcravens wrote:
| Square, Stripe, Cash App, Venmo, Paypal, etc...
| jellicle wrote:
| 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_mone
| y...
| bithead wrote:
| >These scams will continue until regulators get serious
| about putting people in jail for them.
|
| Which is so much more likely under turmp.
| evrydayhustling wrote:
| 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.
| cyanydeez wrote:
| Criminal prosecution only works on poor people.
|
| Crimes where the individual is elected president or just
| gets rich don't do anything of merit.
| cyanydeez wrote:
| Unfortunately, the kleptomaniacs are in charge.
|
| Please try again in 4 years
| Thorrez wrote:
| 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...
| SmellTheGlove wrote:
| 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.
| georgeecollins wrote:
| 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.
| aluminussoma wrote:
| 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.
| rubyfan wrote:
| 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.
| telgareith wrote:
| 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.
| lupusreal wrote:
| 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.
| mimgdoc wrote:
| 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
| smugma wrote:
| See also
|
| https://www.pewtrusts.org/en/research-and-analysis/issue-
| bri...
| dboreham wrote:
| tbf the UK government does the same thing:
| https://en.wikipedia.org/wiki/Premium_Bonds
| dylan604 wrote:
| > 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.
| bryanrasmussen wrote:
| 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.
| mtnGoat wrote:
| Probably whoever gets it the longest just failed to
| properly reinvest their ill gotten funds into legal
| advice.
| chillingeffect wrote:
| 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.
| brundolf wrote:
| > 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.
| throwup238 wrote:
| 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).
| KyleJune wrote:
| 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.
| jareklupinski wrote:
| > 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
| griomnib wrote:
| Exactly, lots of people "lose" their savings in Vegas every
| day.
| briandear wrote:
| U
| marginalien wrote:
| 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.
| roncesvalles wrote:
| 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.
| sokoloff wrote:
| I'm willing to wager that there is money actually missing.
| roncesvalles wrote:
| It's very difficult to make money disappear in the US
| system without getting caught eventually.
| brundolf wrote:
| 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
| jt2190 wrote:
| 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.
| duped wrote:
| 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.
| ameliaquining wrote:
| 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.
| frankohn wrote:
| 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.
| mosdl wrote:
| Rules don't stop all fraud, justike laws don't stop all crime.
| JohnFen wrote:
| 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.
| UltraSane wrote:
| 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-...
| frankohn wrote:
| 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.
| UltraSane wrote:
| 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.
| bdangubic wrote:
| 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...
| BobaFloutist wrote:
| 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.
| paxys wrote:
| 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.
| dangrossman wrote:
| 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.
| d--b wrote:
| > 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...
| UltraSane wrote:
| Yes. Marc Andreessen is worth about $2 billion. he should be
| personally paying for the audit.
| krony wrote:
| 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
| wiradikusuma wrote:
| 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?
| myflash13 wrote:
| Uh-oh, this really shakes my confidence in fintech neobanks like
| Mercury, Wise, Revolut and the lot.
| cg5280 wrote:
| 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.
| lutorm wrote:
| 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...
| landedgentry wrote:
| 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/fdi
| cBa... [2] https://www.fidelity.com/cash-management/help-
| center/debit-c...
| sofixa wrote:
| Revolut are a real bank, at least in Europe, and all funds in
| it are protected by the relevant country's banking fund.
| blackeyeblitzar wrote:
| 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-...
| whitehexagon wrote:
| 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.
| andrewstuart wrote:
| Igiving away prizes looks pretty much like a ponzi scheme to me.
| gruez wrote:
| It's not. It's a scheme that arose out of behavioral economics.
|
| https://en.wikipedia.org/wiki/Prize-linked_savings_account
| pessimizer wrote:
| Why would those two things be mutually exclusive?
| jrockway wrote:
| 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.
| Animats wrote:
| 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...
| dzonga wrote:
| lately there has been an increase in scammy yc startups
| alexey-salmin wrote:
| 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.
| kasey_junk wrote:
| 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.
| anon84873628 wrote:
| Yeah, it seems there should be equally strict regulations on
| whatever entity is managing the FBO.
| hammock wrote:
| >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
| rachofsunshine wrote:
| 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>".
| hammock wrote:
| 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
| UltraSane wrote:
| Kinda feels like Synapse was really just a fancy money laundering
| operation.
| fortran77 wrote:
| > 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.
| fortran77 wrote:
| Note the "Backed by YCombinator" on their web page:
|
| https://web.archive.org/web/20200630201639/https://www.withy...
| colinprince wrote:
| https://www.ycombinator.com/companies/yotta
|
| https://web.archive.org/web/20240529113112/https://www.ycomb...
| ProjectArcturis wrote:
| 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?
| gdilla wrote:
| This will be even more common place in the Musk-Vivek
| deregulation hellscape
| pessimizer wrote:
| Will it? I have no idea how this trash could be legal
| currently, yet it is.
| fnordpiglet wrote:
| 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!)
| corbet wrote:
| 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...
| deadeye wrote:
| 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.
| yottathrow wrote:
| 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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