CNBC spoke to a dozen customers caught in the Synapse fintech predicament, people who are owed sums ranging from $7,000 to well over $200,000.
The government should mandate warning labels on companies like that, maybe “fintech” would be a good word to force them to use, similar to the way large companies have to use the “enterprise” warning label and games companies have to be labelled “triple A” to know their products and services are low quality and have a high risk of failure.
I like your style
Do you not have banking licenses (someone mentioned FDIC)? Over here, that’s how you tell real [regulated and insured] banks from pretend banks.
The “what is a bank” question is complicated, so “fintechs” have been operating in areas that are in some gray areas in between “definitely a bank” versus “definitely not a bank.”
At the most informal, you’ve got things like a roommate who collects everyone’s fair share of rent before sending one payment to the landlord, or a parent who keeps track of their kids’ virtual balances of what the kids are allowed to spend. These definitely aren’t banks.
Then you’ve got things like short term balances between people who deal with each other: an employer who keeps track of hours and pays the employee at the end of the pay period, a retail customer who has some store credit from a returned item, a contractor who periodically invoices a customer for work performed, etc. Despite the “credit” and “balances,” these aren’t bank accounts.
Some gray areas get a little bit more complicated. You have airline mileage and hotel point programs where the miles/points can be used to purchase goods and services, including sometimes those not even being offered by the business where the miles were accumulated.
Then you get into banking-like structures that might be, or might not be banks. Is it banking when you buy something on a periodic payment plan? What about when you put down a deposit to reserve a preorder for something you expect to buy when that product is released? Or give someone a gift card for a specific store? Does it matter if these programs are administered by third parties separate from the buyer or seller?
Even things like Apple Cash or PayPal or Venmo or CashApp perform functions that can be bank-like, or not really bank-like.
Fintechs have looked at the constantly updated rules of what they can or can’t do before needing to comply with certain banking regulations, and usually try to avoid accidentally triggering certain rules. And the rules don’t divide into just bank versus not bank, as many of the rules apply to non-banks that do certain things, and many of the rules don’t apply to even banks that stay out of certain product lines. So it’s not a binary yes or no, but a series of complicated areas where some are yes and some are no.
The big problem, where this Synapse bankruptcy is hurting people, is when people worked with an entity that provides certain services, who relied on the back end on a middleman that provides other services, and then the middleman fails. People operating in the gray areas are exposing themselves to systemic risks they might not fully understand.
I’m not from the US so unfamiliar with any of this, but having followed the link to the Yotta website from the article, it is a… gambling site? What leap is missing that people would entrust their savings to gambling?
Might as well be a gambling site: It was a startup bank with no Federal backing (FDIC) that appears to have promised greater returns than traditional banks by investing your money and giving you some of the profits back from dividends.
Still, it was a startup that wasn’t fully vested nor backed federally to secure people’s deposits. Sad.
The lie was WORSE than that.
A lot of the fintechs invovled actually told people their money was safe, because it was subject to “passthrough FDIC insurance”, because their money was ultimately put in an insured bank, and thus was safe.
Problem is that’s not how it actually worked, so basically everyone was straight up lied to.
Basically the whole thing is that the bank keeps track of who owns which account and how much money they have, so if they go bust, you just have the FDIC come in and use that data and write checks, basically.
Except since they’re disrupting banking, they also decided to just fucking not bother, and so even if there was going to be a payout, nobody has any fucking clue who has how much and in which bank said money was.
Absolute clusterfuck, and about what you’d expect from silly-con valley types.
“Hand us your money and us MBAs promise it’ll eventually get somewhere safe” is not reassuring even before the lie.
MBAs? Oh my goodness no.
It was a couple of venture capitalists!
Wow. Stochastic interest payouts. Another lamentable perverted contribution coming from irresponsible MBA schools
There was no interest on Yotta accounts. Originally, when you signed up, you were given a lottery ticket everyday for every 25$ in the account. There was a lottery everyday where you could win up to 25000. Then they switched to games where you essentially gambled with the tickets that were given based on your amount.
I was once a member but pulled the money when interest rates started to rise. I was lucky.
I’ll also note, when signing up, I was given the impression this FDIC insured.
Originally, it was insured. Synapse changed to brokerage soon before they failed.
when a bank is described as a “savings startup”, you should run the other way screaming
Exactly. The combination of “bank” and “startup” is innately terrifying. Don’t put more money than you can afford to lose in a place like that.
(Aren’t there any laws in the US regarding who can call themselves a bank? Or is this another case of Americans being unwilling to do something sane and obvious because some politician has convinced them it will infringe on their “freedom”?)
Yes and no. Banks are strictly regulated. But that’s why companies like Paypal continually remind people that they are not a bank, so they can escape that regulation.
People relied on accounts powered by Synapse for everyday expenses like buying groceries and paying rent, or for saving for major life events like home purchases or surgeries.
Gotta love US healthcare
I’d be broke a long time ago if I lived the US. Good thing I’m French and a surgery for a life threatening condition, plus 4 month of rehabilitation, costed me a whopping 0€.
That’s some kind of communist talk. In the Land of the Free you are your own man. No nanny state telling you what to do. You have options. You can be rich, you can put all your money into a scam bank, which is de facto sanctioned, (and die when they do a rug pull because you no longer have money for life saving, much less preventative care), or you can die. But this was your choice, and you can have a huge truck (N.B. the bank actually owns the truck, but in 5 years you’ll have it paid off).
🇺🇲🇺🇲🇺🇲
In reality I left the US years ago and don’t miss it, I do fear for friends though.
We have a fantastic medical system if you are poor in a state that funds it’s Medicaid system well OR wealthy enough to not be burdened by the cost of medical care.
To be fair, being poor only works if it is a clear cut life threatening issue. Otherwise, they treat and street you…
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America dumb.
I wouldn’t call them dumb. Masochist, maybe, but not dumb.
We’re not masochists, we’re just ruled by sadists.
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Be my language tutor 🙃 I’d love to Marseille in a heartbeat.
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.
So you’re telling me that a company which manages $42 billion worth of assets doesn’t have the money to hire a firm to track down where all of the money was transferred to? https://en.wikipedia.org/wiki/Andreessen_Horowitz
what surprised me about this, is, with as much money that’s at stake, how the hat couldn’t have been passed around to the stakeholders, to fund, then get the court to order an accounting using the plaintiffs forensic accountants. something about that doesn’t make any sense to me at all.
I can’t wait until TRUMP Dismantles the Protections that PREVENT this type of thing from Normally Happening!
Except, if we already had protections to prevent this from happening, then it wouldn’t have happened… Or at least the FDIC would have actually stepped in by now to pay everyone back and track down all the funds themselves.
What leads you to believe this?
The fact that every other article about his incoming administration is talking about their desire to dismantle the federal government, maybe.
God damnit, now I want to try to carbonate pasta sauce.
Don’t let your dreams be dreams. Soda machines and Prego are both fairly affordable. 😂
Example #1 is how he’s cozied up to crypto and talked about deregulating it.
Republicans deregulate banks every time they get into office.
They are against things like the CFPB but they aren’t getting rid of the FDIC which is the good faith backing of the US banking system. The 1% isn’t so liquid that they wouldn’t lose huge amounts of money with a full scale banking crisis
I don’t know how relevant FDIC is to the 1%; it only covers 250k, and only in things like checking and savings accounts and CDs: https://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporation
Most of the 1% wealth is probably tied up in things like stocks and real estate, or maybe they diversify all over the place.
The FDIC coverage wouldn’t be what they would be worried about. They wouldn’t have their accounts much above FDIC limits.
My point is that the FDIC serves to prevent a banking crisis that would limit their ability to liquidate their assets and realize their wealth
Ah gotcha, that makes sense. Thanks.
It doesn’t only cover 250k. There are different rates of coverage per account type, number of account holders, and bank. You can have millions of dollars covered by FDIC by moving portions of your money around to different accounts and different banks.
People are desperate and Trump is unpredictable. They ‘know’ the Dems aren’t helping them, so Trump might accidentally do it!
I think you need to read it more carefully. He didn’t use a /s tag
In case anyone is unfamiliar, BigMacHole is a joke account.
Thanks, I discarded my sarcasm detector in early 2017
It’s a nice day for Americans with savings to use the FDIC’s bank finder tool to double-check whether their savings are in an FDIC-insured situation.
Or, alternative idea…
MAGACOIN GET YOUR MAGACOIN HERE
They can’t steal my money if its on hard drives buried in a dump.
American credit unions are not insured by the FDIC and won’t appear there. They are insured by the NCUA.
Yotta Savings, the fintech that all these people deposited their money with, first came to my attention through this YouTube video from CoffeeZilla a couple months back, seems Yotta was a huge sponsor of really an astounding amount of YouTube creators, who while hawking Yotta to their subscribers also deposited their own money with Yotta as well. Huge mess.
Risky investment turns out to be risky. No one could have seen that coming.
This isn’t about shareholders being wiped out. It’s about account holders of what they thought were bank accounts losing everything because their accounts were powered on the back end by a company they’d never heard of or directly dealt with.
Scam bank sounded like a scam to begin with.
If you see this as investment, then consider that investors were lied to (the startups claimed to have FDIC coverage) and didn’t have accurate information to assess the risk.
Synapse lied to the fintechs, too.
Yeah, it’s almost weird that it’s news.
Imagine if they made news after a big fight about people who gambled and lost.
Imo the bigger news is the financial illiteracy of the average person.
Goddam I’m happy to live in a place where these things are well regulated!
This is an absolute horror story, people chose a saving account they thought was super secured, and instead it’s a total scam.I am from the US and I have no idea what they are talking about here.
Me either, it sounds like it was a gambling site that encouraged large deposits and offered some sort of benefits for doing so. This seems extremely unethical, and should probably have been illegal based on gambling or banking rules.
Apparently they weren’t always a gambling site in the way that you see today, they switched over to this sometime in the last 2 years: https://www.youtube.com/watch?v=bBUkajbg688&t=119s
Isn’t that what they signed up for when they put their money in a nonFDIC insured account?
Read the article, and maybe don’t be such a heartless bastard?
Several people CNBC interviewed said signing up seemed like a good bet since Yotta and other fintechs advertised that deposits were FDIC-insured through Evolve.
“We were assured that this was just a savings account,” Morris said during last week’s hearing. “We are not risk-takers, we’re not gamblers.”
I realize that my comment does sound really harsh. And there definitely should be criminal penalties for falsely advertising that they were an FDIC covered institution and a best effort to return the funds
But (again I am being harsh again) there is risk in putting your money in a faceless app instead of a brick and mortar institution and there needs to be some personal accountability for making bad decisions
What do you say to those who use Wells Fargo (brick and mortar institution) and and screw you over by opening accounts on your behalf?
I’ve been using Ally (an online bank) for decades. They told me that they are FDIC insured (and they are), but I would never thought to go to FDIC gov website to double check their words. I bet most Americans don’t do that. It is not a reasonable expectation.
I don’t think these folks were making bad decisions. These folks were lied to and were robbed.
This is not the same.
Exactly. I’m making my initial dealings with brick and mortar since there’s no telling whose at the other end of a strictly online deal. Ok, you exist. Cool. Now business as usual, non-NigerianPrince.
They changed to a cash sweep / brokerage model (not FDIC-insured at the individual account holder level) like 6 months before the bankruptcy. End users had to click a consent checkbox or the like and probably thought nothing of it.
That changes everything. That’s dirty pool, shouldn’t have been allowed by SEC/Fed or who ever their regulator was
It’s 2008 all over again
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“When she and her husband sold the house last year, they stowed away the proceeds, $282,153.87” Literally the second sentence in the article.
That schoolteachers name? Walter White.
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