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Americans see their savings vanish in Synapse fintech crisis

258 points by hunter2_ 2y ago

treetalker 2y ago
[flagged]
matwood 2y ago
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 2y ago
  Because rich people got richer, which is always ok
- briandear 2y ago
  [flagged]
  - HeatrayEnjoyer 2y ago
    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.
    - bboygravity 2y ago
      [flagged]
      - jimjimjim 2y ago
        as opposed to quite accurate parotting of extremist infotainment?
      - cancerhacker 2y ago
        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.)
    - blackeyeblitzar 2y ago
      > 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.
      - atombender 2y ago
        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.
        blackeyeblitzar 2y ago
        > 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?
  - cg5280 2y ago
    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.
- UltraSane 2y ago
  Because they only stole from poor people who can't lobby. The article even quotes someone saying as much.
xvector 2y ago
We really oughta institute the death penalty for execs involved in shit like this.
- throwaway14356 2y ago
  don't word it like that! it should be a punishment that sufficiently discourages repetition
- treetalker 2y ago
  Skin in the game prevents a lot of problems.
  - Nasrudith 2y ago
    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.
    - treetalker 2y ago
      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.
- Ekaros 2y ago
  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 2y ago
  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...
dexter0 2y ago
> 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 2y ago
  How is this possible in USA?
  - bboygravity 2y ago
    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 2y ago
    Decades of deregulation. More to come.
    - gruez 2y ago
      What specific regulation would have prevented this? Or is this just a knee jerk response against "deregulation"?
      - rvba 2y ago
        One could make a regulation that account data cannot be lumped.
      - bdangubic 2y ago
        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.”
simpaticoder 2y ago
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 2y ago
  Much like with cybersecurity incidents. Regulators haven’t acted and they keep happening.
- PittleyDunkin 2y ago
  > 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 2y ago
    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 2y ago
    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 2y ago
      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.
finni7642 2y ago
[dead]
ksynwa 2y ago
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 2y ago
  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 2y ago
    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.withyotta.com/ https://web.archive.org/web/20200630201639/https://www.withy...
    - sgerenser 2y ago
      Proudly displaying the Y Combinator logo right there on the home page.
  - KyleJune 2y ago
    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 2y ago
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.withyotta.com/ https://web.archive.org/web/20230912164609/https://www.withy...
- wiradikusuma 2y ago
  I watched some YouTube videos that said it was a bank app (sort of) before changing to gambling.
- comex 2y ago
  “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 2y ago
    > 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.
briandear 2y ago
U
marginalien 2y ago
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 2y ago
  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 2y ago
    I’m willing to wager that there is money actually missing.
    - roncesvalles 2y ago
      It's very difficult to make money disappear in the US system without getting caught eventually.
  - brundolf 2y ago
frankohn 2y ago
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 2y ago
  Rules don't stop all fraud, justike laws don't stop all crime.
  - JohnFen 2y ago
    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 2y ago
  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-deposit-insurance-recordkeeping-rule-banks-third-party https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
  - frankohn 2y ago
    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 2y ago
      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.
d--b 2y ago
> 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 2y ago
  Yes. Marc Andreessen is worth about $2 billion. he should be personally paying for the audit.
- krony 2y ago
  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 2y ago
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?
_1tem 2y ago
Uh-oh, this really shakes my confidence in fintech neobanks like Mercury, Wise, Revolut and the lot.
- cg5280 2y ago
  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 2y ago
  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 2y ago
    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/fdicBankList https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa... [2] https://www.fidelity.com/cash-management/help-center/debit-card/security https://www.fidelity.com/cash-management/help-center/debit-c...
- sofixa 2y ago
  Revolut are a real bank, at least in Europe, and all funds in it are protected by the relevant country's banking fund.
- 2y ago
andrewstuart 2y ago
Igiving away prizes looks pretty much like a ponzi scheme to me.
- gruez 2y ago
  It's not. It's a scheme that arose out of behavioral economics. https://en.wikipedia.org/wiki/Prize-linked_savings_account https://en.wikipedia.org/wiki/Prize-linked_savings_account
  - pessimizer 2y ago
    Why would those two things be mutually exclusive?
    - jrockway 2y ago
      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 2y ago
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-frozen-in-synapse-to-be-returned-by-year-end-trustee-says https://www.bloomberg.com/news/articles/2024-10-23/funds-fro...
ElonChrist 2y ago
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J05ephu5M13r 2y ago
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dzonga 2y ago
lately there has been an increase in scammy yc startups
alexey-salmin 2y ago
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 2y ago
  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 2y ago
    Yeah, it seems there should be equally strict regulations on whatever entity is managing the FBO.
- hammock 2y ago
  >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
UltraSane 2y ago
Kinda feels like Synapse was really just a fancy money laundering operation.
fortran77 2y ago
> 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 2y ago
Note the "Backed by YCombinator" on their web page: https://web.archive.org/web/20200630201639/https://www.withyotta.com/ https://web.archive.org/web/20200630201639/https://www.withy...
- colinprince 2y ago
  https://www.ycombinator.com/companies/yotta https://www.ycombinator.com/companies/yotta https://web.archive.org/web/20240529113112/https://www.ycombinator.com/companies/yotta https://web.archive.org/web/20240529113112/https://www.ycomb...
Slava_Propanei 2y ago
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ProjectArcturis 2y ago
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 2y ago
This will be even more common place in the Musk-Vivek deregulation hellscape
- pessimizer 2y ago
  Will it? I have no idea how this trash could be legal currently, yet it is.
  - fnordpiglet 2y ago
    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 2y ago
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 2y ago
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.
safebet 2y ago
Juno gave clear indication it was a savings account, FDIC insured deposits, etc
yottathrow 2y ago
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RJIb8RBYxzAMX9u 2y ago
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 https://en.wikipedia.org/wiki/Prize-linked_savings_account
drewbitt 2y ago
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'.
happymellon 2y ago
> 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.

258 points by hunter2_ 2y ago

[flagged]

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 2y ago
Because rich people got richer, which is always ok
briandear 2y ago
[flagged]
- HeatrayEnjoyer 2y ago
  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.
  - bboygravity 2y ago
    [flagged]
    - jimjimjim 2y ago
      as opposed to quite accurate parotting of extremist infotainment?
    - cancerhacker 2y ago
      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.)
  - blackeyeblitzar 2y ago
    > 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.
    - atombender 2y ago
      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.
      - blackeyeblitzar 2y ago
        > 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?
- cg5280 2y ago
  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.
UltraSane 2y ago
Because they only stole from poor people who can't lobby. The article even quotes someone saying as much.

xvector 2y ago

We really oughta institute the death penalty for execs involved in shit like this.

throwaway14356 2y ago
don't word it like that! it should be a punishment that sufficiently discourages repetition
treetalker 2y ago
Skin in the game prevents a lot of problems.
- Nasrudith 2y ago
  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.
  - treetalker 2y ago
    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.
Ekaros 2y ago
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 2y ago
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...

dexter0 2y ago

> 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 2y ago
How is this possible in USA?
- bboygravity 2y ago
  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 2y ago
  Decades of deregulation. More to come.
  - gruez 2y ago
    What specific regulation would have prevented this? Or is this just a knee jerk response against "deregulation"?
    - rvba 2y ago
      One could make a regulation that account data cannot be lumped.
    - bdangubic 2y ago
      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.”

simpaticoder 2y ago

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 2y ago
Much like with cybersecurity incidents. Regulators haven’t acted and they keep happening.
PittleyDunkin 2y ago
> 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 2y ago
  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 2y ago
  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 2y ago
    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.

finni7642 2y ago

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ksynwa 2y ago

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 2y ago
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 2y ago
  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.withyotta.com/ https://web.archive.org/web/20200630201639/https://www.withy...
  - sgerenser 2y ago
    Proudly displaying the Y Combinator logo right there on the home page.
- KyleJune 2y ago
  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 2y ago

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.withyotta.com/ https://web.archive.org/web/20230912164609/https://www.withy...

wiradikusuma 2y ago
I watched some YouTube videos that said it was a bank app (sort of) before changing to gambling.
comex 2y ago
“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 2y ago
  > 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.

briandear 2y ago

marginalien 2y ago

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 2y ago
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 2y ago
  I’m willing to wager that there is money actually missing.
  - roncesvalles 2y ago
    It's very difficult to make money disappear in the US system without getting caught eventually.
- brundolf 2y ago

frankohn 2y ago

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 2y ago
Rules don't stop all fraud, justike laws don't stop all crime.
- JohnFen 2y ago
  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 2y ago
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-deposit-insurance-recordkeeping-rule-banks-third-party https://www.fdic.gov/news/press-releases/2024/fdic-proposes-...
- frankohn 2y ago
  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 2y ago
    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.

d--b 2y ago

> 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 2y ago
Yes. Marc Andreessen is worth about $2 billion. he should be personally paying for the audit.
krony 2y ago
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 2y ago

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?

_1tem 2y ago

Uh-oh, this really shakes my confidence in fintech neobanks like Mercury, Wise, Revolut and the lot.

cg5280 2y ago
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 2y ago
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 2y ago
  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/fdicBankList https://accountopening.fidelity.com/ftgw/aong/aongapp/fdicBa... [2] https://www.fidelity.com/cash-management/help-center/debit-card/security https://www.fidelity.com/cash-management/help-center/debit-c...
sofixa 2y ago
Revolut are a real bank, at least in Europe, and all funds in it are protected by the relevant country's banking fund.
2y ago

andrewstuart 2y ago

Igiving away prizes looks pretty much like a ponzi scheme to me.

gruez 2y ago
It's not. It's a scheme that arose out of behavioral economics. https://en.wikipedia.org/wiki/Prize-linked_savings_account https://en.wikipedia.org/wiki/Prize-linked_savings_account
- pessimizer 2y ago
  Why would those two things be mutually exclusive?
  - jrockway 2y ago
    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 2y ago

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-frozen-in-synapse-to-be-returned-by-year-end-trustee-says https://www.bloomberg.com/news/articles/2024-10-23/funds-fro...

ElonChrist 2y ago

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J05ephu5M13r 2y ago

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dzonga 2y ago

lately there has been an increase in scammy yc startups

alexey-salmin 2y ago

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 2y ago
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 2y ago
  Yeah, it seems there should be equally strict regulations on whatever entity is managing the FBO.
hammock 2y ago
>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

UltraSane 2y ago

Kinda feels like Synapse was really just a fancy money laundering operation.

fortran77 2y ago

> 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 2y ago

Note the "Backed by YCombinator" on their web page: https://web.archive.org/web/20200630201639/https://www.withyotta.com/ https://web.archive.org/web/20200630201639/https://www.withy...

colinprince 2y ago
https://www.ycombinator.com/companies/yotta https://www.ycombinator.com/companies/yotta https://web.archive.org/web/20240529113112/https://www.ycombinator.com/companies/yotta https://web.archive.org/web/20240529113112/https://www.ycomb...

Slava_Propanei 2y ago

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ProjectArcturis 2y ago

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 2y ago

This will be even more common place in the Musk-Vivek deregulation hellscape

pessimizer 2y ago
Will it? I have no idea how this trash could be legal currently, yet it is.
- fnordpiglet 2y ago
  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 2y ago

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 2y ago

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.

safebet 2y ago

Juno gave clear indication it was a savings account, FDIC insured deposits, etc

yottathrow 2y ago

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RJIb8RBYxzAMX9u 2y ago

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 https://en.wikipedia.org/wiki/Prize-linked_savings_account

drewbitt 2y ago

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'.

happymellon 2y ago

> 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.