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I think stories like these highlight the need for clearer (not necessarily more) regulations around contractor/subcontractor/client relationships and what happe

I think stories like these highlight the need for clearer (not necessarily more) regulations around contractor/subcontractor/client relationships and what happens when one of them goes tits up. There were rampant issues in the fintech world that exploded when Synapse, a banking as a service provider, went bankrupt and their ledger didn't match what partner banks had in their accounts. End users were told "your deposits are FDIC insured", but in bankruptcy court the judge was sort of at a loss over how to rectify things - the banks weren't insolvent, and the FDIC (rightfully) said "hey, this isn't our problem, our regulated entities are in compliance". Looks like a similar situation happened here, where the contractors are both doing the "not it" thing. I feel like a lot of tech innovation and "business process innovation" over the past 15 years was just ignoring regulations that were built up over decades, only discovering the reasons for those regulations when the tide went out and seeing that lots of companies had been pantsless the whole time.

ww520 2mo ago
Whoever claims "your deposits are FDIC insured" needs to be prosecuted as fraud and scam artists. “Your” the company’s deposits in the bank is FDIC insured. My deposit with you the company is not. When the bank goes belly up, your deposit is FDIC secured up to the account limit which is tiny in the scale of things. When your company goes belly up, my deposit is gone.
- recursivecaveat 2mo ago
  My understanding is that they split the accounts to keep up with the limit. Otherwise though yeah, FDIC will only step in for the extreme minority scenario of failure by the underlying bank. You absolutely should not be allowed to advertise FDIC insurance unless it goes all the way to the consumer.
  - vel0city 2mo ago
    > they split the accounts to keep up with the limit You're right about that, they (and other fintechs) have tons of accounts split across a ton of tiny little banks. All of those accounts and banks are FDIC insured. But, those aren't the end client's accounts. They're shared pools of money from all the clients. When Alice and Bob both give the fintech $100, the fintech may split up that total $200 across dozens of different accounts. When Alice wants $20 back, it might not even come from accounts where her initial $100 landed, that money probably got sent to Charlie when he wanted his $1,000 back. The fintech's money was FDIC insured. If any of those banks failed, all the fintech's deposits would be guaranteed. But if the fintech mismanaged their client funds and suddenly their outstanding balances in their client databases are larger than the sum of all the balances of all their hundreds of FDIC bank accounts, their clients are SOL.
- dylan604 2mo ago
  > When the bank goes belly up, your deposit is FDIC secured up to the account limit which is tiny in the scale of things. The FDIC is meant to protect individual people from loosing all of their money from the collapse of a bank, currently at $250k. If you have more wealth than that yet have it all as cash in a single account, then, you're pretty much an ID10T. For regular mere mortals, that's a helluva lot better than a bank telling you to pound sand when they collapse. If you're a business thinking the gov't is meant to protect you, then you are also delusional.
  - judge2020 2mo ago
    > If you have more wealth than that yet have it all as cash in a single account, then, you're pretty much an ID10T. SVB collapse has shown that the 250k limit is basically not relevant. Maybe if a big consumer bank like Chase failed then 250k would be the max paid out, but we haven't seen that. And OP is referring to Synapse, where the FDIC could not help any of the americans who lost their savings because the underlying banks didn't fail. https://www.cnbc.com/2024/11/22/synapse-bankruptcy-thousands-of-americans-see-their-savings-vanish.html https://www.cnbc.com/2024/11/22/synapse-bankruptcy-thousands...
    - anonymars 2mo ago
      > SVB collapse has shown that the 250k limit is basically not relevant Only as long as you're too big to fail...
kmeisthax 2mo ago
If you talk to a lawyer (or, worse, a legislator, many of whom are also lawyers and all of whom are surrounded by them), they will insist up and down that this is a pretty standard custodial arrangement dispute and that the system worked as intended. And I would, very begrudgingly agree with that. The legal system is perfectly capable of recognizing stolen property no matter how many layers of abstraction you put it through. The problem is always in the fact that the dispute resolution process is too expensive[0] to be useful. If you are defrauded for $10,000; but the legal fees for your representation will exceed that; then that juice ain't worth the squeeze. See also: Bricks and Minifigs. In the Nine PBS case the judge correctly recognized Iron Mountain as a constructive bailee of Nine PBS's property and created a framework to retrieve their data. The problem is that this took almost half a year of legal work to get to the obvious outcome to make Nine PBS whole. In Synapse's case, the problem is slightly different, because Synapse is not a bank, they are a reseller of banking services. That's the whole idea behind "fintech[1]" - that we can sell banking services while dodging all the regulatory compliance designed specifically to stop these kinds of issues so long as a real bank is involved. Saying their deposits are FDIC insured is like saying you have auto insurance because you happen to be riding a taxi. Technically correct but misleading and fraudulent. FDIC insurance doesn't cascade into your customers' accounts, because if it did, you'd be a bank. [0] There's a similar problem with Bitcoin, where only a certain number of transactions can ever be processed per hour and thus it bottlenecks any higher-layer process that intends to use the Bitcoin blockchain as a settlement or dispute resolution system. [1] "Fintech" in particular is meaningless as all banks are tech companies. They were one of the first adopters of electronic computers, online transaction processing, and a whole load of other things that seem utterly quaint now. EDIT: changed "years" to "almost half a year", I was too lazy to do another Google search
- Jtsummers 2mo ago
  > The problem is that this took years of legal work to get to the obvious outcome to make Nine PBS whole. Not years. This whole "saga" has been going on for 5 months, and the suit against Iron Mountain was only filed on 28 July, so it just took weeks to come to this current arrangement. EDIT: Toned down the comment. Leaving the rest, though, since I can't delete it with the reply below.
toofy 2mo ago
> … was just ignoring regulations that were built up over decades, only discovering the reasons for those regulations … yeah it’s unreal to me how many people who imagine themselves intelligent are just now discovering the equivalent to why we make wheels round. they never think to ask “why does regulation x exist?” its absolutely crazypants.
- mywittyname 2mo ago
  > they never think to ask “why does regulation x exist?” They do, but they think the answer is always some riff on, "government overreach because bureaucrats need to justify their jobs." That attitude has been firmly ingrained into (at least) a generation of people.
  - Hobadee 2mo ago
    TBF, a solid 50% of regulation is probably government overreach. The problem is that it's intrinsically tangled with the other 50% (crossing various specializations/laws/departments) that isn't; you can't undo one without undoing both.
    - ggm 2mo ago
      love the use of "solid" when both numbers (50, and the other 50) are pure unobtanium pulled out of an orifice. "a lot" would be less rhetorically satisfying, but probably more appropriate. I suspect the number is in fact, far less than 50%. In mining engineering, I'd be amazed if a significant majority of the rules don't stem from a significant accident or death, or forseeable need to avoid them. In medicine, the stakes are equally high. Building codes? It depends. The cost of tunnelling in NY isn't because of government compliance.
      - knollimar 2mo ago
        In building codes, sometimes there's a tragedy that causes government overreach. A death with big public support often causes regulation that "does something" even if the rule itself doesn't help or make sense.
s1artibartfast 2mo ago
Why do you think the laws and regulations are unclear? This seems to be following the completely standard and expected process. Contractor goes belly up, so you go to court and a judge who confirms they were a custodian of your data and you are entitled to retreive it. Same would be the case if I was leasing equipment to someone and they had it at a storage lot. If the middle party dies or goes bankrupt, I get a court order to claim it from their other possessions.
- veggieroll 2mo ago
  It’s already been months in this case. And, court cases often take many years to resolve. The issue is more that the court is slow and expensive even in the best case.
  - s1artibartfast 2mo ago
    Its been 3 weeks, and they got what they need from the courts. > The St. Louis station sued the information management company July 28 How much do you think it cost? A few grand? Maybe we could replace this by reinventing the wheel, but i dont think it would be better. We could put it on blockchain and let a Peter Theil company handle arbitration.
tintor 2mo ago
"your deposits are FDIC insured" claim was a lie, for anyone building on top of Synapse
vfclists 2mo ago
Why do HN comments which are of little or no relevance to topic always rise to the top of the comments list? Are there some kind of commenting rings or voting rings involved in the phenomenon? I mean what has FDIC deposit insurance got to do with some bankrupt or dissolved company depriving customers of their data? It makes HN virtually useless as a means of assessing the opinions around the actual topic. Perhaps HN should use some kind of AI analysis to mark which comment threads which are on topic and enable to be sorted accordingly.
BrenBarn 2mo ago
> I feel like a lot of tech innovation and "business process innovation" over the past 15 years was just ignoring regulations that were built up over decades, only discovering the reasons for those regulations when the tide went out and seeing that lots of companies had been pantsless the whole time. It's not just tech, it's everything. One of the things the US is really "good" at is allowing a massive gap to emerge between law and enforcement.

ww520 2mo ago

Whoever claims "your deposits are FDIC insured" needs to be prosecuted as fraud and scam artists. “Your” the company’s deposits in the bank is FDIC insured. My deposit with you the company is not. When the bank goes belly up, your deposit is FDIC secured up to the account limit which is tiny in the scale of things. When your company goes belly up, my deposit is gone.

recursivecaveat 2mo ago
My understanding is that they split the accounts to keep up with the limit. Otherwise though yeah, FDIC will only step in for the extreme minority scenario of failure by the underlying bank. You absolutely should not be allowed to advertise FDIC insurance unless it goes all the way to the consumer.
- vel0city 2mo ago
  > they split the accounts to keep up with the limit You're right about that, they (and other fintechs) have tons of accounts split across a ton of tiny little banks. All of those accounts and banks are FDIC insured. But, those aren't the end client's accounts. They're shared pools of money from all the clients. When Alice and Bob both give the fintech $100, the fintech may split up that total $200 across dozens of different accounts. When Alice wants $20 back, it might not even come from accounts where her initial $100 landed, that money probably got sent to Charlie when he wanted his $1,000 back. The fintech's money was FDIC insured. If any of those banks failed, all the fintech's deposits would be guaranteed. But if the fintech mismanaged their client funds and suddenly their outstanding balances in their client databases are larger than the sum of all the balances of all their hundreds of FDIC bank accounts, their clients are SOL.
dylan604 2mo ago
> When the bank goes belly up, your deposit is FDIC secured up to the account limit which is tiny in the scale of things. The FDIC is meant to protect individual people from loosing all of their money from the collapse of a bank, currently at $250k. If you have more wealth than that yet have it all as cash in a single account, then, you're pretty much an ID10T. For regular mere mortals, that's a helluva lot better than a bank telling you to pound sand when they collapse. If you're a business thinking the gov't is meant to protect you, then you are also delusional.
- judge2020 2mo ago
  > If you have more wealth than that yet have it all as cash in a single account, then, you're pretty much an ID10T. SVB collapse has shown that the 250k limit is basically not relevant. Maybe if a big consumer bank like Chase failed then 250k would be the max paid out, but we haven't seen that. And OP is referring to Synapse, where the FDIC could not help any of the americans who lost their savings because the underlying banks didn't fail. https://www.cnbc.com/2024/11/22/synapse-bankruptcy-thousands-of-americans-see-their-savings-vanish.html https://www.cnbc.com/2024/11/22/synapse-bankruptcy-thousands...
  - anonymars 2mo ago
    > SVB collapse has shown that the 250k limit is basically not relevant Only as long as you're too big to fail...

kmeisthax 2mo ago

If you talk to a lawyer (or, worse, a legislator, many of whom are also lawyers and all of whom are surrounded by them), they will insist up and down that this is a pretty standard custodial arrangement dispute and that the system worked as intended. And I would, very begrudgingly agree with that. The legal system is perfectly capable of recognizing stolen property no matter how many layers of abstraction you put it through. The problem is always in the fact that the dispute resolution process is too expensive[0] to be useful. If you are defrauded for $10,000; but the legal fees for your representation will exceed that; then that juice ain't worth the squeeze. See also: Bricks and Minifigs. In the Nine PBS case the judge correctly recognized Iron Mountain as a constructive bailee of Nine PBS's property and created a framework to retrieve their data. The problem is that this took almost half a year of legal work to get to the obvious outcome to make Nine PBS whole. In Synapse's case, the problem is slightly different, because Synapse is not a bank, they are a reseller of banking services. That's the whole idea behind "fintech[1]" - that we can sell banking services while dodging all the regulatory compliance designed specifically to stop these kinds of issues so long as a real bank is involved. Saying their deposits are FDIC insured is like saying you have auto insurance because you happen to be riding a taxi. Technically correct but misleading and fraudulent. FDIC insurance doesn't cascade into your customers' accounts, because if it did, you'd be a bank. [0] There's a similar problem with Bitcoin, where only a certain number of transactions can ever be processed per hour and thus it bottlenecks any higher-layer process that intends to use the Bitcoin blockchain as a settlement or dispute resolution system. [1] "Fintech" in particular is meaningless as all banks are tech companies. They were one of the first adopters of electronic computers, online transaction processing, and a whole load of other things that seem utterly quaint now. EDIT: changed "years" to "almost half a year", I was too lazy to do another Google search

Jtsummers 2mo ago
> The problem is that this took years of legal work to get to the obvious outcome to make Nine PBS whole. Not years. This whole "saga" has been going on for 5 months, and the suit against Iron Mountain was only filed on 28 July, so it just took weeks to come to this current arrangement. EDIT: Toned down the comment. Leaving the rest, though, since I can't delete it with the reply below.

toofy 2mo ago

> … was just ignoring regulations that were built up over decades, only discovering the reasons for those regulations … yeah it’s unreal to me how many people who imagine themselves intelligent are just now discovering the equivalent to why we make wheels round. they never think to ask “why does regulation x exist?” its absolutely crazypants.

mywittyname 2mo ago
> they never think to ask “why does regulation x exist?” They do, but they think the answer is always some riff on, "government overreach because bureaucrats need to justify their jobs." That attitude has been firmly ingrained into (at least) a generation of people.
- Hobadee 2mo ago
  TBF, a solid 50% of regulation is probably government overreach. The problem is that it's intrinsically tangled with the other 50% (crossing various specializations/laws/departments) that isn't; you can't undo one without undoing both.
  - ggm 2mo ago
    love the use of "solid" when both numbers (50, and the other 50) are pure unobtanium pulled out of an orifice. "a lot" would be less rhetorically satisfying, but probably more appropriate. I suspect the number is in fact, far less than 50%. In mining engineering, I'd be amazed if a significant majority of the rules don't stem from a significant accident or death, or forseeable need to avoid them. In medicine, the stakes are equally high. Building codes? It depends. The cost of tunnelling in NY isn't because of government compliance.
    - knollimar 2mo ago
      In building codes, sometimes there's a tragedy that causes government overreach. A death with big public support often causes regulation that "does something" even if the rule itself doesn't help or make sense.

s1artibartfast 2mo ago

Why do you think the laws and regulations are unclear? This seems to be following the completely standard and expected process. Contractor goes belly up, so you go to court and a judge who confirms they were a custodian of your data and you are entitled to retreive it. Same would be the case if I was leasing equipment to someone and they had it at a storage lot. If the middle party dies or goes bankrupt, I get a court order to claim it from their other possessions.

veggieroll 2mo ago
It’s already been months in this case. And, court cases often take many years to resolve. The issue is more that the court is slow and expensive even in the best case.
- s1artibartfast 2mo ago
  Its been 3 weeks, and they got what they need from the courts. > The St. Louis station sued the information management company July 28 How much do you think it cost? A few grand? Maybe we could replace this by reinventing the wheel, but i dont think it would be better. We could put it on blockchain and let a Peter Theil company handle arbitration.

tintor 2mo ago

"your deposits are FDIC insured" claim was a lie, for anyone building on top of Synapse

vfclists 2mo ago

Why do HN comments which are of little or no relevance to topic always rise to the top of the comments list? Are there some kind of commenting rings or voting rings involved in the phenomenon? I mean what has FDIC deposit insurance got to do with some bankrupt or dissolved company depriving customers of their data? It makes HN virtually useless as a means of assessing the opinions around the actual topic. Perhaps HN should use some kind of AI analysis to mark which comment threads which are on topic and enable to be sorted accordingly.

BrenBarn 2mo ago

> I feel like a lot of tech innovation and "business process innovation" over the past 15 years was just ignoring regulations that were built up over decades, only discovering the reasons for those regulations when the tide went out and seeing that lots of companies had been pantsless the whole time. It's not just tech, it's everything. One of the things the US is really "good" at is allowing a massive gap to emerge between law and enforcement.