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...
binary_slinger
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) 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.
ProjectArcturis
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?
marginalien
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.
show comments
gdilla
This will be even more common place in the Musk-Vivek deregulation hellscape
dexter0
> 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.
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simpaticoder
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.
show comments
matwood
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?
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fortran77
Note the "Backed by YCombinator" on their web page:
lately there has been an increase in scammy yc startups
fortran77
> 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.
frankohn
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.
show comments
UltraSane
Kinda feels like Synapse was really just a fancy money laundering operation.
wiradikusuma
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?
d--b
> 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…
show comments
ksynwa
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.
show comments
Animats
Huh? A month ago, the bankruptcy trustee for Synapse said that reconciliation was complete and funds would be returned by the end of the year. What happened?[1]
Oh. Note at the end: (Updates with quote from trustee’s report in last paragraph. A previous version of this story corrected the last paragraph to say a potential shortfall remains between the amount of money available for return to customers and what is recorded on Synapse’s ledgers.)
Look up the Peerstreet bankruptcy for a variant of this story. "FDIC insurance" didn't help there either. That's all the fintech experience I ever intend to have...
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...
Did I get this right:
1) non-bank fintech put client's money in the bank
2) they told clients that money in the bank are covered by FDIC which is technically true
3) fintech moved money out of the bank
4) bank insurance doesn't apply because the bank didn't "lose" anything
At least this seems to match the Evolve's part of the story from the article. And Evolve is a real bank so they should have all the records to prove it. If so then it's a clear fraud by fintechs, but FDIC can't do much. Otherwise Evolve is lying and in this case FDIC can take over.
I wonder what is a reliable way to know if in the end your money is covered or not. Trusting what the contract tells you is evidently not enough. Having a "real" individual account number in a real bank? Not sure either, if intermediary can move the money out of your personal account then account insurance likely won't work either.
This seems like obviously fraud on the part of Synapse/Yotta. Where else could the money have gone? There were no risky investments. The underlying bank didn't collapse. Why isn't there a federal prosecutor on this?
Apparently, the problem is not that the money would be gone but that it’s just somewhere else because only BaaS middleman Synapse has access to the actual reconciliation how these funds distribute across individual fintech end users. According to the article, this is because of „very large bulk transfers“ which did not identify ultimate creditors. I am still puzzled how that can be. If end users top up their digital wallets, they typically send money by means of a real bank transfer to a client money account at a real bank. So at least at this initial point in time it was clear to the underlying banks who owned the money. Apparently, end users then spent money through user-facing fintech apps (I.e., „Yotta“) which is where the problem must have started as reconciliation of funds sat with Synapse only but not with the underlying banks…?
It would be great if someone with more background could comment to clarify as this case is potentially relevant to many other fintech / banking-as-a-service offerings out there.
This will be even more common place in the Musk-Vivek deregulation hellscape
> 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.
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.
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?
Note the "Backed by YCombinator" on their web page:
https://web.archive.org/web/20200630201639/https://www.withy...
lately there has been an increase in scammy yc startups
> Customers believed the accounts were backed by the full faith and credit of the U.S. government.
Let's just hope that the U.S. Government doesn't bail out people who gambled on sketchy investment schemes. With a renewed push for "crypto" my big fear is us Taxpayers will be bailing out everyone's 401ks in 4 years.
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.
Kinda feels like Synapse was really just a fancy money laundering operation.
My first question is how the government could let the app/arrangement happen in the first place. I'm guessing they thought it was "just an extra layer before hitting the real bank," which is what I assumed everyone was thinking when they deposited their money.
When apparently it's "not quite", then I guess it's illegal?
> The mystery of where those funds are hasn’t been solved, despite six months of court-mediated efforts between the four banks involved. That’s mostly because the estate of Andreessen Horowitz-backed Synapse doesn’t have the money to hire an outside firm to perform a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.
Ok, so they can’t find $50m cause they don’t have any money? They still have $11m that they intend to pay customers back. Surely the customers are willing to sacrifice some of that to pay someone to look at the spreadsheets.
Also, that A16z isn’t willing to pay out of pocket for the reconciliation is a disgrace. Surely the bad PR is worth much more than the cost of the audit…
Never heard of yotta before. Upon seeing that the couple deposited $280k with them, I followed the accompanying link to their website. It was a horrifying experience.
Huh? A month ago, the bankruptcy trustee for Synapse said that reconciliation was complete and funds would be returned by the end of the year. What happened?[1]
Oh. Note at the end: (Updates with quote from trustee’s report in last paragraph. A previous version of this story corrected the last paragraph to say a potential shortfall remains between the amount of money available for return to customers and what is recorded on Synapse’s ledgers.)
[1] https://www.bloomberg.com/news/articles/2024-10-23/funds-fro...
Uh-oh, this really shakes my confidence in fintech neobanks like Mercury, Wise, Revolut and the lot.
Igiving away prizes looks pretty much like a ponzi scheme to me.
U
Trust me, bro.
We really oughta institute the death penalty for execs involved in shit like this.