Stating the obvious, this is bad. These people did not “gamble” on some meme stock or coin, these were literal savings accounts, supposedly backed by insurance. There should be no way to lose the...
The crisis started in May when a dispute between Synapse and Evolve Bank over customer balances boiled over and the fintech middleman turned off access to a key system used to process transactions.
Synapse helped fintech startups like Yotta and Juno, which are not banks, offer checking accounts and debit cards by hooking them up with small lenders like Evolve.
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. 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.
A Synapse contract that customers received after signing up for checking accounts stated that user money was insured by the FDIC for up to $250,000, according to a version seen by CNBC.
“According to the FDIC, no depositor has ever lost a penny of FDIC-insured funds,” the 26 page contract states.
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.
Evolve says that “the vast majority” of funds held for Yotta and other customers were moved to other banks in October and November of 2023 on directions from Synapse, according to an Evolve spokesman.
“Where those end user funds went after that is an important question, but unfortunately not one Evolve can answer with the data it currently has,” the spokesman said.
Stating the obvious, this is bad. These people did not “gamble” on some meme stock or coin, these were literal savings accounts, supposedly backed by insurance.
There should be no way to lose the proceeds from your home sale from what basically amounts to depositing them. I’m sure this will entail a legal mess for years to come. I truly hope those affected will see compensation… but given this article, I’m not really too positive.
The issue is that the entity that's at fault really is Synapse, and Synapse is already completely dead and liquidated, so there's literally nothing to extract compensation from anymore. Both Yotta...
The issue is that the entity that's at fault really is Synapse, and Synapse is already completely dead and liquidated, so there's literally nothing to extract compensation from anymore. Both Yotta and Evolve can argue that, from their angle, they were doing right by the customers.
Surely there's some kind of class action case possible over the "FDIC insured" claim? Anyone who made that clain for one of these accounts ought to be criminally liable, personally, for people who...
Surely there's some kind of class action case possible over the "FDIC insured" claim? Anyone who made that clain for one of these accounts ought to be criminally liable, personally, for people who trusted that insurance.
The FDIC guarantee automatically garners a certain trust for a company. But it sounds like it was actually being applied fraudulently, here. And that's the real crime, because that fraudulent claim made people trust these (non-insured) accounts. And when the company imploded, of course the FDIC doesn't feel like compensating random debt that they had no connection to previously!
The question is, class action against who? The contract was with Synapse, the defunct entity. Class Action isn't a magic wand, it's just a way to combine a lot of individual lawsuits. As long as...
The question is, class action against who? The contract was with Synapse, the defunct entity. Class Action isn't a magic wand, it's just a way to combine a lot of individual lawsuits. As long as Evolve and Yotta never used the FDIC claim, they would seem to be shielded.
Yotta did advertise that the accounts were backed by FDIC. Including this bit from their "Your funds are not able to be processed by ACH announcement" during the Synapse disaster. Here's their...
Yotta did advertise that the accounts were backed by FDIC. Including this bit from their "Your funds are not able to be processed by ACH announcement" during the Synapse disaster.
How does this impact me?
Customer funds in the Synapse Brokerage Program are swept (deposited) into accounts at a network of member FDIC banks. Funds held in these accounts are eligible for FDIC insurance.
All programs that work with Synapse are impacted by this. ACH transfers and card transactions will not go through until banks restore their services.
Win up to $10 million by saving in an FDIC insured account.
The claim was still their as of Nov 11, 2022, though much more muted:
FDIC Insured
Your money is held in an account eligible for pass-through FDIC insurance up to $250,000 through Evolve Bank & Trust
While I can't say for certain where the line should be drawn for "claims to be FDIC", I'd say it's any time they imply that they are FDIC insured, if not directly by them, by where they are keeping your money. 2023
HOW WE MAKE Money
Yotta is not a bank. Yotta does not hold any customer funds. We partner with a network of member FDIC banks, where customer funds are held. Though we are not a bank, we make money in a similar way to banks.
Today in 2024, there is no mention of FDIC on the main page. It's still in their FAQ. On their linked historical banking in the fine print, the only reference to FDIC is in the fine print on that page:
Yotta is a financial technology company, not a bank. Banking services provided by Evolve Bank & Trust, members FDIC and Synapse Brokerage LLC Program Banks. Please visit https://synapsefi.com/list-of-program-banks for the full list of Program Banks.
Number drawings RNG certified by Gaming Labs International.
The Yotta Mastercard Debit card is issued by Evolve Bank & Trust, member FDIC, pursuant to a license from Mastercard.
Dear potential lawyers forming lawsuit: I'd like in on that please. Even though I somewhat minimized my personal damages, I'd like to see them sued into the ground so nobody thinks twice about pulling this shit again.
I'd also like to see them convicted for violating any number of gambling statutes.
While you are likely correct from a legal perspective, at best it's misleading marketing. And while I'm not a lawyer, if I had money to burn I'd be filing a suit to attempt to get through...
While you are likely correct from a legal perspective, at best it's misleading marketing. And while I'm not a lawyer, if I had money to burn I'd be filing a suit to attempt to get through discovery.
The perpetual downplaying of that FDIC-insured claim makes me think they knew this was iffy. Notice how in that latest version, they make no claims about keeping your funds in one of those banks. I'd personally love to see a kind soul at one of these institutions leak the hell out of what was going on behind the curtain.
TBH I don't even really care about the specifics of that personally. I'd rather attack them from the proper angle of exploitation of gamblers as a market strategy by pitching it to them as an alternative to gambling.
I genuinely don't think so. As far as Yotta could tell, Synapse was a) creating a bank account with Evolve and b) moving the money there. That the money is now missing and Synapse has conflicting...
I genuinely don't think so. As far as Yotta could tell, Synapse was a) creating a bank account with Evolve and b) moving the money there. That the money is now missing and Synapse has conflicting records with Evolve is a different issue.
But the promise was a) your money would be in Evolve b) Evolve is FDIC insured c) the FDIC insurance is passthrough (that is, if Evolve is insolvent, you would get the money, not Synapse or Yotta).
The only part that is false is a), and Yotta can likely prove with corporate contracts that from their angle, Synapse was doing the right thing. That they weren't, is something you should take up with Synapse.
It appears that, as often happens with these non-banks, what they were saying was perhaps technically true, but extremely misleading. There was FDIC insurance involved: for Synapse's accounts at...
But it sounds like it was actually being applied fraudulently, here.
It appears that, as often happens with these non-banks, what they were saying was perhaps technically true, but extremely misleading.
There was FDIC insurance involved: for Synapse's accounts at Evolve Bank and Trust, an actual bank. Synapse operated by having their own accounts at a real bank, pooling customer assets in them, and (supposedly) keeping track of how much was associated with each customer. If Evolve Bank and Trust had failed, there would have been FDIC coverage (though it's not clear to me whether the $250k limit there would have been per Synapse customer, or for the entirety of Synapse). But Evolve didn't fail: instead, the actual balance Synapse put in their own accounts was less than the amount of customer deposits they were supposed to put in those accounts, for whatever reason.
If someone tells you, "Give me $1,000, I'll put it in my account, and it will be FDIC-insured when in my account", the FDIC insurance part is not technically a lie. In this case, it was the "I'll put it in my account" that was a lie.
I don't think that Yotta pooled money. If nothing else, that would defeat the purpose of FDIC insurance to begin with. I'm pretty sure Yotta just made a new Evolve account per user. Synapse...
I don't think that Yotta pooled money. If nothing else, that would defeat the purpose of FDIC insurance to begin with. I'm pretty sure Yotta just made a new Evolve account per user.
Synapse doesn't directly deal with any end users. The chain was Yotta (the pseudo-bank), who used Synapse to move money to and from Evolve (an actual bank). Synapse exploded, and misplaced money.
Yotta might not have directly, but it appears that Synapse was pooling money into a (potentially single) FBO / for-the-benefit-of account with Evolve. This post seems to suggest that, as does this...
Yotta might not have directly, but it appears that Synapse was pooling money into a (potentially single) FBO / for-the-benefit-of account with Evolve. This post seems to suggest that, as does this one. Thus Evolve, at least, did not have accounting of what money was in the account of which end-user: Synapse was supposed to keep track of that, and that seems to be a major part of the problem.
Edit: Hmmm... after looking at this a bit more, I'm not entirely convinced that this situation is as it seems, and that the FDIC has no involvement or responsibility at all. It appears that the FDIC has a pass-through system such that it does cover deposits of customers of non-banks that the non-banks put in FDIC-insured FBO accounts at banks, and that coverage is per-customer, even when the accounts pool customer assets (see here and here). That coverage would be based on which assets in the covered account belonged to which individual customers, according to the records of the fintech/non-bank. This would mean that both Synapse and its clients like Yotta were not lying, or even being misleading, when they said the accounts were FDIC insured.
The problem here is that because Synapse's records didn't make sense and didn't have the same total as the amount in the FBO account, that's a specific failure mode that isn't covered by the FDIC, even though the FDIC did nominally cover those accounts, using Synapse's records, not Evolve's. It appears that the FDIC recognizes this is a problem, and is making rules changes to ensure banks have direct access to non-bank records of individual customers.
Why was it applied fraudulently? The ToS said that funds stored in Evolve bank on behalf of the user would be FDIC insured. They're not wrong; they are, and still are, FDIC insured.
Why was it applied fraudulently? The ToS said that funds stored in Evolve bank on behalf of the user would be FDIC insured. They're not wrong; they are, and still are, FDIC insured.
Hoo, is that a naive statement. Banks robbing people is extremely common, which is why the government is constantly writing new laws to restrict what they can do. It wasn’t that long ago that they...
“When you tell people about this, it’s like, ‘There’s no way this can happen,’” Jacobs said. “A bank just robbed us. This is the first reverse bank robbery in the history of America.”
Hoo, is that a naive statement. Banks robbing people is extremely common, which is why the government is constantly writing new laws to restrict what they can do. It wasn’t that long ago that they made mandatory overdraft fees illegal.
That aside, this is a horrible story to hear. But it’s yet another notch in my “don’t trust tech startups with money” belt. Sadly, not everyone has such a belt, and even fewer people both knew the name Andreessen Horowitz and how it should mean “run for the hills”. The fact that there is any financial institution that doesn’t keep extremely detailed records of what’s happening to that money is such a sin that everyone involved with that decision should face punishment for it.
While I am a fan of fintech in theory, in practice it seems to have increasingly become an industry fueled by a blatant disregard for the rules, privacy, the rights of individuals using their products, and in spite of the high and easily measurable risks, security. I remember not too long ago there was a startup that was trying to bypass banks not offering an API by asking users to give them their online banking usernames and passwords, something that was usually explicitly against their agreements with the banks. And these schemes usually work because the average person doesn’t know anything about how our financial institutions work and don’t realize why what they’re doing is a bad thing.
You're referring to Plaid? They're still around and AFAIK doing fine, somehow. I agree that it's bonkers; I've used several services that assumed I would be fine giving away my bank credentials...
I remember not too long ago there was a startup that was trying to bypass banks not offering an API by asking users to give them their online banking usernames and passwords
You're referring to Plaid? They're still around and AFAIK doing fine, somehow. I agree that it's bonkers; I've used several services that assumed I would be fine giving away my bank credentials via Plaid. It continuously astonishes me that everyone seems fine with it.
I came across them recently; they integrate with the mandatory open banking APIs where I am, so no shared credentials, but I actually stopped to read the terms because something felt a little odd...
I came across them recently; they integrate with the mandatory open banking APIs where I am, so no shared credentials, but I actually stopped to read the terms because something felt a little odd about this third party being in the middle of the transaction in the first place.
Turns out one of the bullet points right near the top was that they'd share my overall account balance and recent transactions with the partner in question. For me to make a one-off payment to that partner. What the actual fuck?!
Issue of convince. Banks not offering an API in this day and age is insane, so someone fills the gap. 90% of the users don't even understand what they're done, some small % of the rest decide it's...
Issue of convince. Banks not offering an API in this day and age is insane, so someone fills the gap. 90% of the users don't even understand what they're done, some small % of the rest decide it's worth the risk for the ease of use.
YNAB and Mint(when it was a thing) only function because plaid exists. I'd prefer to keep my info completely internal, doubly so when you're paying for a product like ynab, but the only other option is to just do it manually. If the whole reason you're attempting to use such a product is because you're bad at the manual part, well you really have no other option.
The problem is when services ONLY offer plaid instead of allowing you to use banks that do offer such APIs. With that option, people could move their money into banks with APIs and that would move...
The problem is when services ONLY offer plaid instead of allowing you to use banks that do offer such APIs. With that option, people could move their money into banks with APIs and that would move the market.
To my knowledge that didn’t happen, and because of Plaid’s use of these unethical practices, Plaid became these banks de-facto APIs, which means another middleman gets to make their money off of you. Hooray? But I’m not in finance so I can’t tell you if that’s how things are or not.
Starling Bank in the UK (online only bank, one of the so-called challenger banks) are starting down the road of enshitification , scrapping interest on their current accounts, thereby forcing...
Starling Bank in the UK (online only bank, one of the so-called challenger banks) are starting down the road of enshitification , scrapping interest on their current accounts, thereby forcing people who want to continue earning that meagre rate into some new form of savings account, but many, like me, leveraged their 'Spaces' feature to segregate piles of money being saved for different reasons. With their new savings account you can only have one of them, so no easy view of how your savings for holiday, car maintenance, and computer hardware are going. And if you leave them in your current account you're just getting inflated away.
I'm a Starling customer and I'll be waiting for the savings accounts to launch before I call it a "bad" thing. I've always been surprised by how high a rate you could earn on their current...
I'm a Starling customer and I'll be waiting for the savings accounts to launch before I call it a "bad" thing.
I've always been surprised by how high a rate you could earn on their current accounts and wasn't shocked that it is going away once they have proper savings accounts. I'm 99% sure they will give us the "spaces" feature, or something that does basically the same thing, on the new savings accounts.
Having been either a customer of or worked with basically every bank (older than 20 years or so) in the UK at some point I still consider them by far the best. Or least bad.
It looks like it is partially launched now and tightly integrated with the existing spaces feature. I can create a new "space" as a savings account now. For some reason I've only got fixed type...
It looks like it is partially launched now and tightly integrated with the existing spaces feature.
I can create a new "space" as a savings account now. For some reason I've only got fixed type available right now, but apparently easy/flexible should be a thing.
I've got a Starling easy saver open now. One single savings account and no spaces feature. I'd say that's a significant step backwards. Confirmed it with Starting Support and gave feedback on my...
I've got a Starling easy saver open now. One single savings account and no spaces feature. I'd say that's a significant step backwards.
Confirmed it with Starting Support and gave feedback on my disappointment about the reduction of utility of Spaces
This seems like a really tough one to unpick. The entire purpose of FDIC insurance is to protect normal customers who can’t reasonably be expected to spot highly complex financial fuckery that...
A Synapse contract that customers received after signing up for checking accounts stated that user money was insured by the FDIC for up to $250,000, according to a version seen by CNBC.
This seems like a really tough one to unpick. The entire purpose of FDIC insurance is to protect normal customers who can’t reasonably be expected to spot highly complex financial fuckery that could put their deposits at risk - and who often literally wouldn’t have access to the information that would reveal that fuckery even if they had the expertise to understand it. But if the fraudulent part is the claim that the accounts were insured in the first place, what then?
Failing to cover the deposits screws over innocent people and tanks the trust in what the FDIC is there for. Covering them erodes the legitimacy of the scheme’s rules and incentivises other financial organisations to claim they have coverage when that’s anywhere between a grey area and an outright lie.
I think on balance they really have to cover customer losses and come down like a ton of bricks on the perpetrators, but that doesn’t do a lot to guard against the same thing happening again in the future, and I’m not really sure what would.
Yeah that part stood out to me too. So how does one actually verify that a bank is actually backed by FDIC? Is there like an FDIC page with 'here are the banks we cover...' or do we just have to...
Yeah that part stood out to me too. So how does one actually verify that a bank is actually backed by FDIC? Is there like an FDIC page with 'here are the banks we cover...' or do we just have to assume they're not lying and hope for the best?
This whole thing has really piqued my interest now! Looking at the terms of service for Yotta, one of the companies mentioned in the article, from before the issues with Synapse became apparent:...
By using our services, you authorize Yotta Technologies, Inc. to hold your deposits for your benefit at Evolve Bank & Trust, Member FDIC or Thread Bank, Member FDIC in an account ("FBO Account"). Your deposits in an FBO Account are eligible for pass-through FDIC insurance. For purposes of applicable pass-through FDIC deposit insurance limitations, please note that deposits in Evolve Bank & Trust and Thread Bank FBO Account may not be separately insured from any other deposit accounts you may have with Evolve Bank & Trust and Thread Bank.
Bank services are provided by Evolve Bank & Trust, Member FDIC, through our banking software provider, Synapse. To report a complaint relating to the bank services, email help@Synapsefi.com. Bank services are also provided by Thread Bank, member FDIC.
[...]
The Yotta wallet account (“Wallet Account”) issued to you by Evolve Bank & Trust, Member FDIC or Thread Bank, Member FDIC (“Bank”) is subject to and governed by Bank’s Customer Account Agreement (the “Account Agreement”), and other related services are provided by Synapse Financial Technologies Inc (“Synapse”) on behalf of Bank, as a service provider.
[...]
Synapse is our backend software provider, and partners with financial institutions to provide FDIC insurance.
(Emphasis mine)
That language is conspicuously absent from their current terms.
So yeah, if you'd signed up a earlier in the year, diligently checked the full terms of service, and verified that the partner banks held FDIC insurance you'd still be screwed by not knowing that Yotta and Synapse's claims to pass through the insurance of those partners weren't legally valid.
Wow what a nightmare and headache all in one. I feel for anyone caught up in this, seems very easy to fall victim to this when the disclaimers are that confusing. This entire thread made me...
Wow what a nightmare and headache all in one. I feel for anyone caught up in this, seems very easy to fall victim to this when the disclaimers are that confusing. This entire thread made me realize that I didn't actually know if any of the credit unions or companies that I use were actually insured. I assumed they were, because they're large institutions and most have physical locations that I can visit, but I technically did not know for sure. So I looked them all up and turns out all are insured except for my damn 401k which blatantly states 'not FDIC-insured' on the bottom of their main website. Fucking hell how is that even allowed.
I don't think 401k can be FDIC insured- it's a security, not a bank account. It may be SIPC insured though (and may even have supplemental insurance on top of that). SIPC won't help you if the...
I don't think 401k can be FDIC insured- it's a security, not a bank account. It may be SIPC insured though (and may even have supplemental insurance on top of that). SIPC won't help you if the market crashes, but it is supposed to protect against a failing brokerage.
Good point, but unfortunately for me I did not find them in the SIPC search either. I took a look at the SIPC mission page and am even more confused now. I thought it might be that the SIPC simply...
Good point, but unfortunately for me I did not find them in the SIPC search either.
I took a look at the SIPC mission page and am even more confused now.
Within limits, SIPC expedites the return of missing customer property by protecting each customer up to $500,000 for securities and cash (including a $250,000 limit for cash only).
...
It is important to understand that SIPC is not the securities world equivalent of the Federal Deposit Insurance Corporation (FDIC), which insures depositors of insured banks.
I thought it might be that the SIPC simply aids you in getting your money back but doesn't actually give you any money if there's no money to get back (like the brokerage going bankrupt). But then I skimmed through their founding documents and it really does seem like they insure your securities up to $500,000 or $250,000 cash. I'm not a lawyer or lawmaker but it reads to me like they have a large reserve on hand and they'll reimburse you for whatever the bank/brokerage/company doesn't have (up to those limits) and then try to liquidate the company to recoup as much as possible. Sounds like insurance to me but I might be misreading or misunderstanding things (§78fff-3 specifically).
Regardless, I'm glad at least my other retirement accounts are SIPC-protected. Now I guess I'll be looking into possibly moving some of the non-protected 401k into those protected accounts instead. I'm thankful for this thread for opening my eyes to the topic and making me consider things I never really previously thought about.
Brokerage/retirement accounts are somewhat different than bank accounts in terms of safety, and coverage is somewhat less important so long as the firm is legitimate. For a bank account, you give...
Exemplary
Brokerage/retirement accounts are somewhat different than bank accounts in terms of safety, and coverage is somewhat less important so long as the firm is legitimate.
For a bank account, you give your assets to the bank, and they use them for lending/etc, keeping some amount in reserve. A legitimate bank, which hasn't broken any laws, can end up no longer having enough assets to cover customer accounts, which is why FDIC insurance is important. If the bank becomes insolvent in a normal way, customer assets can be lost. But this is why you can get interest. The money is, in some sense, not yours.
For a brokerage account, the broker holds the assets for you; while there are some complexities, like lending shares to short sellers, the broker largely can't use your assets for their own benefit, and FINRA requires that customer assets and broker assets be kept separate, rather than commingled. If a broker becomes insolvent, that should have no effect on the customer assets. Those should all be there: they are still 'yours'. Usually, the resolution, from a customer side, is that the account assets are just transferred to another broker, potentially with the SIPC coordinating that. This is why you don't get interest on cash balances in a brokerage account, unless you have a sweep feature that moves that cash into an interest-bearing product, in which case that product may be insured (and may actually be FDIC-insured). If you have cash in a brokerage account, the broker actually needs to have that cash, and have that cash separate from their own assets.
The actual SIPC insurance becomes important when the broker has broken laws, and hasn't kept client assets separate. This was the case for, eg, Madoff, where he wasn't actually purchasing the securities he said he was purchasing for his clients, and wasn't keeping assets separate (because he was running a Ponzi scheme).
So the difference here is that, if you have an account with a reputable bank, you can still lose assets if the bank fails even through no fault of its own, and FDIC insurance is important in that case, whereas if you have an account with a reputable broker, you shouldn't need to rely on SIPC insurance unless the broker turns out to have been criminally disreputable.
Fantastic explanation, thank you. Follow-up question then. What about in the case of a security owned by a broker? Say I have my 401k with a reputable company, and the actual money there is in...
Fantastic explanation, thank you.
Follow-up question then. What about in the case of a security owned by a broker? Say I have my 401k with a reputable company, and the actual money there is in their own Target Retirement 20XX Fund. If the broker becomes insolvent, what happens to that fund (and others they might have)? Like you mentioned that the securities would most likely be transferred to a different broker, but would that still be the case if a fund is operated by the insolvent broker?
I'm not really sure. A fund itself becoming insolvent is bad, and is something that wouldn't be covered by any insurance, including SIPC. But I'm not sure the extent to which funds created by a...
I'm not really sure. A fund itself becoming insolvent is bad, and is something that wouldn't be covered by any insurance, including SIPC. But I'm not sure the extent to which funds created by a larger company are affected by the larger company's insolvency: I think that there is a separation of assets or potentially legal entities involved such that the fund's assets would not be part of the insolvency.
Credit unions also aren't FDIC insured...they have a separate fund through the NCUA (National Credit Union Administration). It's a similar setup, covering up to $250K.
Credit unions also aren't FDIC insured...they have a separate fund through the NCUA (National Credit Union Administration). It's a similar setup, covering up to $250K.
It is valid. Any money that is in Evolve Bank & Trust is FDIC insured. The issue is that your money isn't in Evolve Bank & Trust, and no one actually knows where it is.
It is valid. Any money that is in Evolve Bank & Trust is FDIC insured. The issue is that your money isn't in Evolve Bank & Trust, and no one actually knows where it is.
It’s an interesting distinction, actually. Does the insurance pass through to the end user in any meaningful way if they can’t guarantee whether or not it applies to them at any given moment? If...
It’s an interesting distinction, actually. Does the insurance pass through to the end user in any meaningful way if they can’t guarantee whether or not it applies to them at any given moment?
If it were a bank failure, the question of where the money is would be moot from a customer perspective because that’s specifically what the insurance is there for. I think a very strong argument can be made that claiming the insurance passes through is equivalent to claiming the customer is covered by the insurance - and that claim would be fraudulent in light of what’s happened here.
Not that it helps much, given there’s no entity left to sue for fraud, I suppose.
Yes, because if Evolve bank had failed due to a lack of funds, then the user's would be protected up to the FDIC limit. The issue is that the bank "forgot", so to speak, their balance, not that...
Yes, because if Evolve bank had failed due to a lack of funds, then the user's would be protected up to the FDIC limit. The issue is that the bank "forgot", so to speak, their balance, not that they don't have enough to cover withdraws.
I’m not sure how that fits with your post before about the money not being in Evolve bank? I can only see two possibilities here: the money is in an appropriately insured bank account, in which...
I’m not sure how that fits with your post before about the money not being in Evolve bank?
I can only see two possibilities here: the money is in an appropriately insured bank account, in which case the users will be guaranteed to get it back, or the money was mishandled and is not in a bank account, and if that’s able to happen then claiming that FDIC coverage applied to the customer was misleading to the point of fraud.
FDIC insurance is for insolvency, not fraud. Furthermore, FDIC passthrough is a specific thing - it's in reference to when you have a bank account that you own, but another entity manages, and...
FDIC insurance is for insolvency, not fraud.
Furthermore, FDIC passthrough is a specific thing - it's in reference to when you have a bank account that you own, but another entity manages, and it's mainly there to specify that you own it, and thereby have the rights to reclaim the funds if the bank holding the fund is insolvent. There's no indication that anyone didn't file the paperwork such that the user's were not the owners of the Evolve bank accounts. Nothing incorrect there.
There are three entities in the situation, and the two that still exist can claim that everything was normal from their side: Yotta and Evolve. Yotta put the money (from their perspective) into Evolve through Synapse. Evolve never got the funds. Synapse probably fucked it up. Synapse is already liquidated, though.
The claims that FDIC insurance applies is correct.
Well, this whole conversation is happening because of Synapse's insolvency, so I don't think it's unreasonable to look closely at any claims around insolvency insurance being passed through to the...
Well, this whole conversation is happening because of Synapse's insolvency, so I don't think it's unreasonable to look closely at any claims around insolvency insurance being passed through to the customer, even if the final conclusion is that they don't apply.
If it's functionally possible for Synapse, or any other entity in their position, to claim passthrough insurance but not then make the deposits on the customers' behalf then the concept of "passthrough" is so misleading as to be effectively meaningless.
Any maybe that's the takeaway from this whole situation: that FDIC passthrough is meaningless and either needs tighter rules or expanded coverage. But if that's the case then that alone is a very important development and I think shrugging and saying that the claims were technically correct (something I'm still not entirely sold on) undermines the significance of the changes that are needed here.
FDIC pass through isn’t meaningless, it’s just a specific thing. Here’s the point: it’s about clarifying who really owns the account. Let’s say the accounts weren’t pass through insured and Evolve...
FDIC pass through isn’t meaningless, it’s just a specific thing. Here’s the point: it’s about clarifying who really owns the account.
Let’s say the accounts weren’t pass through insured and Evolve failed. Then Synapse, as the one directly managing the account, would get the FDIC insurance money.
Because it is passthrough insured, the customer would get the money in the case Evolve was insolvent. But Evolve was never insolvent, so FDIC insurance of any kind of is irrelevant.
If you think that’s misleading, then you’d need to ask that question of the federal government who named it.
That's fair, and I probably should have said "so misleading as to be effectively meaningless to the customer". In this situation, from a customer perspective, Synapse being insolvent is...
That's fair, and I probably should have said "so misleading as to be effectively meaningless to the customer". In this situation, from a customer perspective, Synapse being insolvent is functionally equivalent to Evolve being insolvent without insurance.
I see your point about the specifics, I can understand that being relevant from a technical perspective in distinguishing between different potential scenarios, but there's a reason that banking has this kind of insurance in the first place: because consumer confidence in the system is essential and expecting the average person to do their own research on such a complex topic simply isn't realistic.
If FDIC insurance can't be reasonably taken to mean "your deposit is safe in case of insolvency" by the average person, the entire mission of the organisation isn't fulfilled.
It isn't, though. Synapse being insolvent would ordinarily have no impact on end users. It only matters in this case for two reasons: 1) Synapse, which is being run by bankruptcy court to optimize...
It isn't, though. Synapse being insolvent would ordinarily have no impact on end users. It only matters in this case for two reasons: 1) Synapse, which is being run by bankruptcy court to optimize returns, has already liquidated so much of itself that it can't afford accountants to track down the money they were supposed to move anymore 2) Even if Synapse is found liable, it's pointless, since they have no money.
The FDIC's scope is narrow and it's definitely not going to have an intermediary screwing up. Synapse isn't even the front-facing entity, no customers knew what Synapse was to begin with.
In the end, the lesson is that you need to make sure your money is actually in an FDIC bank account. If it's through a proxy, ensure that you have the account and routing number and do funding checks.
Think of it like an analogy in a analog world. It'd be like if you mailed money to Evolve to deposit, the mailman put it in entirely the wrong place, but the mailman came back and said "yep I deposited that money" then the mailman got in a horse accident and died and now no one knows where the money is. The FDIC isn't responsible for the mailman.
But it did happen. It did have an impact. The fact that the money is gone and there's apparently no recourse would seem pretty damn equivalent to me if I were that customer. I'm trying to be open...
But it did happen. It did have an impact. The fact that the money is gone and there's apparently no recourse would seem pretty damn equivalent to me if I were that customer.
I'm trying to be open minded here, but I'm really not understanding how you don't see this as a call to action at the very least? There are all kinds of potential fixes to stop it happening again:
Require a big red banner saying "your funds are at risk" if there are points in the chain where the money isn't insured
Prevent the words "FDIC insurance" being used in a customer facing fashion within 1,000 miles of any account where loss of funds is in any way possible
Require FDIC insurance for every entity along the chain of custody if customer funds are being held by intermediaries
Enforce direct API access standards for the insured banks so intermediaries can provide technology without holding customer funds at any time
And sure, there are probably holes in those, I thought them up in two minutes, but hopefully you see what I'm getting at.
This is literally what the FDIC is there to prevent: consumers who acted reasonably having their money disappear through no fault of their own. They say it on the very first line of their about page:
The mission of the Federal Deposit Insurance Corporation (FDIC) is to maintain stability and public confidence in the nation's financial system.
And it's not like that's some great act of altruism and justice - it's a simple acknowledgement that the banking system doesn't function if people don't trust it, and that "it's pointless, since they have no money" needs to be prevented in advance.
I'm not saying the FDIC are necessarily responsible in this case. I absolutely am saying that at a bare minimum this case has exposed a significant loophole in the underlying purpose of their insurance scheme and that needs to be rectified.
And I would absolutely be saying the same things as I am now if that mailman had "FDIC insured deposits" painted on the side of his horse.
It would suck pretty bad as a customer, I don't disagree. But that isn't the FDIC's purpose. The FDIC exists because banking has a specific vulnerability to liquidity crunches. Limiting the...
It would suck pretty bad as a customer, I don't disagree. But that isn't the FDIC's purpose.
The FDIC exists because banking has a specific vulnerability to liquidity crunches. Limiting the outflow by giving a floor to customer confidence therefore has a broader economic principle. It's scope is very limited to bank insolvencies, where the withdrawals exceed the liquidity of the bank.
Let's say that a bank is just defrauding you; you deposit money, they just say "lol" and delete it. Would the FDIC help you there? No, actually, they wouldn't. You'd have to make a civil tort against the bank. The loss of user funds is always possible. The FDIC protects against one specific scenario where you can lose your money.
This seems like a one-off unfortunate incident where an intermediary died and caused chaos. Maybe it'll cause people to think twice about pseudo-banks and cause more people to deposit directly with banks. Maybe that's not even a bad thing? But it's not going to cause any widespread doubt or damage in the financial system. So there's not going to be any movement from the government.
Nothing Yotta bank said was wrong about FDIC insurance. It's more that the FDIC is not some magic shield that protects your money against any and all possibilities. It is only a shield against cases where a bank's liability exceeds its assets. If your money is loss for other reasons, that's not its problem, and has never been.
Is what it is. Unfortunate things happen all the time, unfortunately.
Again, fair - I probably should have been more specific in saying “if loss of funds due to insolvency is in any way possible” - because that’s the reason people aren’t now able to sue Synapse for...
You'd have to make a civil tort against the bank. The loss of user funds is always possible. The FDIC protects against one specific scenario where you can lose your money.
Again, fair - I probably should have been more specific in saying “if loss of funds due to insolvency is in any way possible” - because that’s the reason people aren’t now able to sue Synapse for mishandling their money.
Maybe it'll cause people to think twice about pseudo-banks and cause more people to deposit directly with banks. Maybe that's not even a bad thing?
You’ve got a lot more faith than me in people’s ability to distinguish between a bank and a pseudo-bank!
But it's not going to cause any widespread doubt or damage in the financial system. So there's not going to be any movement from the government.
Maybe you’re right, maybe it’s too small to be on the radar. Seems a shame if that’s the case though, because I can’t see any real downside to the potential fixes - especially the ones that make it clearer for customers to make that “bank / not bank” distinction.
It's more that the FDIC is not some magic shield that protects your money against any and all possibilities. It is only a shield against cases where a bank's liability exceeds its assets.
Sure, but I still think that “banking technology provider that holds consumer funds, with liability that exceeds its assets” isn’t an unreasonable entity to at least consider bringing into the fold there.
It's not the same scenario. The reason why the FDIC protects against bank insolvency is that liquidity runs are contagious, that is, one bank having a liquidity issue is likely to cause another...
It's not the same scenario. The reason why the FDIC protects against bank insolvency is that liquidity runs are contagious, that is, one bank having a liquidity issue is likely to cause another bank to have liquidity issues, and so forth.
That isn't the case with intermediaries like Synapse. They don't lend out user funds, and the issues that caused Synapse to ultimately fail as a business will not have any affect on other banks, pseudo-banks, or banking interface companies. Which is why they won't be "brought under the fold". They aren't related.
The FDIC does not exist to protect consumers from cases where entities wrong them and become liquidated before they can get their due. It is to prevent contagious bank runs.
I don't think there's an issue with Yotta claiming the accounts are FDIC backed. They are. This is more in line with a case where the bank defrauds you (although, I don't think it's malicious in this case). Which the FDIC has nothing to do with. If you deposit money, and a glitch in the bank's system yeets it out, that's more similar to what's happening here, the glitch is just entangled with Synapse's collapse in this case. And in the situation where the bank's systems glitch and delete your money, the FDIC is not helping you.
#2 is the part that really bites in this circumstance. I'm familiar with the term "judgment-proof", but it feels fundamentally wrong that a middleman that they likely never even knew about can be...
#2 is the part that really bites in this circumstance. I'm familiar with the term "judgment-proof", but it feels fundamentally wrong that a middleman that they likely never even knew about can be the cause of so many people losing their money with no recourse.
Something that might be worth trying is getting it clarified that middlemen like Synapse can be regulated by consumer financial protection bureau. But that takes legal or regulatory changes
Something that might be worth trying is getting it clarified that middlemen like Synapse can be regulated by consumer financial protection bureau.
Yeah, but it also says that they can amend those terms and if you keep using them you agree to them. So it would appear that at one point they lost their ability to be covered by FDIC or more...
Yeah, but it also says that they can amend those terms and if you keep using them you agree to them. So it would appear that at one point they lost their ability to be covered by FDIC or more realistically they discovered that it was never the case in the first place and didn’t bother to tell anyone about it.
But it’s not like it matters much anyways because nobody reads those things anyways.
I saw it after, thanks for pointing me to it though! I was curious about other types of accounts, like investment brokers and stuff like that, so I went digging and found some others and added it...
I saw it after, thanks for pointing me to it though!
I was curious about other types of accounts, like investment brokers and stuff like that, so I went digging and found some others and added it to my original comment. Useful to know if you use investment companies that are neither banks nor credit unions, e.g. Vanguard or Fidelity.
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.
They really need to come down hard on the perpetrators here. Significant jail time for the executives, and complete liquidation of their personal assets to make their victims whole. While we're at...
They really need to come down hard on the perpetrators here. Significant jail time for the executives, and complete liquidation of their personal assets to make their victims whole.
While we're at it, no sending them to rich people prison. Put them in the same prisons we put thieves, drug dealers, and murderers in.
The tricky part is that there isn't really any "perpetrators". It's just an unfortunate situation, the modern banking equivalent of someone spilling coffee on your bank documents and irreversibly...
The tricky part is that there isn't really any "perpetrators". It's just an unfortunate situation, the modern banking equivalent of someone spilling coffee on your bank documents and irreversibly damaging them.
Lying about being FDIC insured doesn't just "happen", some of the people there decided to do it. Doesn't seem impossible to gather their communication info and figure out who's responsible. Even...
Lying about being FDIC insured doesn't just "happen", some of the people there decided to do it. Doesn't seem impossible to gather their communication info and figure out who's responsible.
Even if it was done out of negligence/ignorance, that's a terrible excuse when dealing with people's hard-earned money and it shouldn't be acceptable.
I don't see how they lied, if you read the ToS it's fairly explicit - your money is in Evolve bank, Evolve bank is FDIC insured. But that was never the issue; the issue is that the intermediary...
I don't see how they lied, if you read the ToS it's fairly explicit - your money is in Evolve bank, Evolve bank is FDIC insured. But that was never the issue; the issue is that the intermediary misplaced the deposits, and the intermediary is dead.
We know who's responsible: Synapse. And Synapse is already fully liquidated. So there's no point in bothering - you can't draw blood from a stone.
So... The money isn't in Evolve bank and the ToS has been broken? It shouldn't matter where the negligence lies, there should be actual consequence for whoever messed up. I'm not American, so I...
your money is in Evolve bank, Evolve bank is FDIC insured
the issue is that the intermediary misplaced the deposits
So... The money isn't in Evolve bank and the ToS has been broken? It shouldn't matter where the negligence lies, there should be actual consequence for whoever messed up.
I'm not American, so I don't know how this law works. But it sounds like there's no way for these people to get justice or be made whole?
The negligence is by Synapse. Synapse would probably end up being "responsible", as Yotta can claim that they broke the contract Yotta had with Synapse to move the money into Evolve, but the issue...
The negligence is by Synapse. Synapse would probably end up being "responsible", as Yotta can claim that they broke the contract Yotta had with Synapse to move the money into Evolve, but the issue is that Synapse is not just bankrupt, it's essentially fully liquidated. Can't draw blood from a stone.
If you commit a murder, then die of natural causes before you're jailed, it's not like they're going to bother trying to charge a dead man.
The people with missing deposits are probably just outta luck.
It could be, but it’s more likely than not just misplaced in the chaos of a dying company. Ultimately, that’s be up to prosecutors to pick up, and not on the depositors.
It could be, but it’s more likely than not just misplaced in the chaos of a dying company.
Ultimately, that’s be up to prosecutors to pick up, and not on the depositors.
It doesn't have to be. I've dealt with the books of a lot of distressed companies, and especially once they're big enough to not have a single financial person things can get lost really easily....
It doesn't have to be. I've dealt with the books of a lot of distressed companies, and especially once they're big enough to not have a single financial person things can get lost really easily. There's a credit card on the books. Does it exist? Maybe. Do we have the records of who it's with, how to access it, and who is the legal owner of the account? Maybe, maybe not.
At a current client, half of all of the accounts were tied to the personal cell phone number of someone who hadn't worked there for 18 months before I came along. Administrative cruft builds up over time, and if someone isn't on top of it all remarkably large sums can become inaccessible. You haven't lost them, quite, because you're still the legal owner, but getting back in is a three-day administrative headache. If you don't have the skilled and knowledgeable staff to wrangle those headaches, it gets even worse.
It's more directly equivalent to the person who committed fraud against you dying penniless tbqh. It wasn't an accident, but where do you get money or justice from?
It's more directly equivalent to the person who committed fraud against you dying penniless tbqh. It wasn't an accident, but where do you get money or justice from?
I'm pretty sure putting in a contract that the funds you're given ate passthrough FDIC insured when they aren't is fraudulent and not something that happens on accident. The fact that they've...
I'm pretty sure putting in a contract that the funds you're given ate passthrough FDIC insured when they aren't is fraudulent and not something that happens on accident. The fact that they've since removed this from the contract makes it pretty clear to me that there was ill-intent at some stage.
They are FDIC insured, though. It wouldn't even be up to them whether or not there's passthrough FDIC insurance to begin with. That isn't the issue; no bank is failing here. It's rather that the...
They are FDIC insured, though. It wouldn't even be up to them whether or not there's passthrough FDIC insurance to begin with. That isn't the issue; no bank is failing here. It's rather that the record of the customer's balances are off.
There's three entities in this situation: Yotta, a financial services company which offered savings accounts through Evolve bank, Synapse, a company used to interface with banks, and Evolve, a bank.
Yotta promised customers that they would make an account with Evolve, which would be FDIC insured, and move money there. The FDIC part is still absolutely true. And from Yotta's perspective, they did move the money there.
Synapse evidently did a bit of trolling. But they're also dead, and liquidated, so there's not much to take responsibility for.
Evolve never got the money, from their perspective. They're still fully solvent.
Correct. A lot of these "man in the middle" financial institutions fall into grey zones for the FDIC. I'd rather keep my money directly with an institution that holds the actual money. I do get...
Correct. A lot of these "man in the middle" financial institutions fall into grey zones for the FDIC. I'd rather keep my money directly with an institution that holds the actual money. I do get the allure of using a great looking fintech, but there are some gambles made for these companies.
I see what you're saying, but it feels a bit uncharitable to hold the customer responsible for recognising that when the whole purpose of the FDIC is recognising that customers can't reasonably be...
I see what you're saying, but it feels a bit uncharitable to hold the customer responsible for recognising that when the whole purpose of the FDIC is recognising that customers can't reasonably be expected to make those assessments for themselves.
I don't think the problem is fully on the FDIC here, it's that these companies are putting the customer in an awkward situation. In theory it appears that the FDIC should be covering the customers...
I don't think the problem is fully on the FDIC here, it's that these companies are putting the customer in an awkward situation. In theory it appears that the FDIC should be covering the customers money. However, the company has created a place where you can put your money that isn't 100% within the jurisdiction of the FDIC. They want the money there but they got into a bind.
I agree I want this to work out for consumers but that company did something wrong.
Oh yeah I don't put this on the FDIC either, I meant that the FDIC and equivalent schemes are only necessary because the banking system is complex and opaque enough that we've collectively decided...
Oh yeah I don't put this on the FDIC either, I meant that the FDIC and equivalent schemes are only necessary because the banking system is complex and opaque enough that we've collectively decided that caveat emptor isn't applicable. When the customer can't reasonably be expected to do their own due diligence, the accepted stand in is "in the worst case, am I insured"?
Assuming that the article is accurate in saying that the contract explicitly claimed deposits were insured, I don't think a reasonable person should be expected to stop and think "is this billion dollar organisation straight up lying on the contract I'm agreeing to?".
I don't have a good answer on that one - I'm not even sure if there is one, to be honest - that was my first reaction on reading about this. Really the only thing I'm specifically saying in this...
I don't have a good answer on that one - I'm not even sure if there is one, to be honest - that was my first reaction on reading about this. Really the only thing I'm specifically saying in this side thread is that the customer could've done everything right and still lost out; I think it's harsh to characterise them as gambling when they look to be victims of a very brazen fraud by a very large, very well funded, ostensibly legitimate company.
I think you should be expected to do that. It's your money and you are ultimately responsible for what you decide to do with it. It is not difficult to check to be sure that an institution is...
I think you should be expected to do that. It's your money and you are ultimately responsible for what you decide to do with it. It is not difficult to check to be sure that an institution is covered by the FDIC. I wouldn't say those people got what they deserved, and definitely Synapse is the villain for lying. I would love to see a way to force Synapse to make real restitutions. But I think Americans are way too gullible and eager to believe in shiny new "tech" shills. I hope at least this helps others be more cautious.
I actually tend to find myself on that same "people need to think more critically about things" side of the argument a lot of the time, but this specific case seems pretty egregious. You could...
I actually tend to find myself on that same "people need to think more critically about things" side of the argument a lot of the time, but this specific case seems pretty egregious. You could correctly verify the banks involved, and your only theoretical recourse would be an understanding that the legal basis of their claim to pass through the FDIC insurance from the partner banks was invalid.
The lesson here should be to not trust passthrough FDIC insurance to be 100% safe. This was the equivalent of handing your cash to a friend to deposit at the bank for you. The cash is FDIC-insured...
The lesson here should be to not trust passthrough FDIC insurance to be 100% safe. This was the equivalent of handing your cash to a friend to deposit at the bank for you. The cash is FDIC-insured once it is at the bank, but while it's in your friend's hand it's not. The juice was not worth the squeeze.
I think it's kind of absurd to expect the average person to know what passthrough FDIC insurance even is and how it differs from real FDIC insurance, especially while they're being presented with...
I think it's kind of absurd to expect the average person to know what passthrough FDIC insurance even is and how it differs from real FDIC insurance, especially while they're being presented with a contract that straight-up lies to them about it. You shouldn't have to be an expert in financial policy to not be the victim of fraud like this.
Passthrough FDIC-insurance should not exist IMO. There's no reason that a financial entity (WealthFront for example) should be able to advertise that they have millions in FDIC insurance because...
Passthrough FDIC-insurance should not exist IMO. There's no reason that a financial entity (WealthFront for example) should be able to advertise that they have millions in FDIC insurance because they split your deposit between banks that have $250k coverage each. What if shit hits the fan just as your money is being transferred through Wealthfront? It's crazy that we're allowing this at all.
However, if I were to give advice to a loved one, I would insist heavily that they go directly to an FDIC-insured bank and you can search on the FDIC website if that bank is covered or not. That's still simple enough to do for most people. Even going to a local branch of a well-known bank is enough.
The people that got burned here literally were hoping to gamble and went to a startup that offered lotto balls in lieu of boring old interest rates. For some things, it's just better to be vanilla and follow the crowd..
That doesn't appear to be the case. The legal claim to pass through the FDIC insurance was valid. See here, or here, for example. The coverage would have covered the bank (Evolve) becoming...
the legal basis of their claim to pass through the FDIC insurance from the partner banks was invalid.
That doesn't appear to be the case. The legal claim to pass through the FDIC insurance was valid. See here, or here, for example.
The coverage would have covered the bank (Evolve) becoming insolvent, and would have done so using Synapse's records of the balances for each customer (since the accounts were pooled). In principle, Synapse becoming insolvent would have no effect on customer assets, and would not need insurance, because Synapse would be depositing the entirety of customer deposits into Evolve, and those assets would not be Synapse's or vulnerable in insolvency. But what was not covered was the case where Synapse didn't actually deposit the entire amount into their account at Evolve, and didn't keep good enough records of what amount actually belonged to each customer in the pooled account.
I came into this thinking that it was a set of completely sketchy companies making fraudulent or at least very misleading claims about FDIC coverage, with the FDIC having no involvement. Instead, it appears that while the FDIC may be legally correct here, it may be the FDIC that allowed their insurance to be both handled and advertised by intermediaries in unsafe and misleading ways.
I was mercifully spared from the collapse of Yotta because their enshittification process transitioned rapidly from "earn tickets by saving for a weekly lottery so you stop buying lottery tickets"...
I was mercifully spared from the collapse of Yotta because their enshittification process transitioned rapidly from "earn tickets by saving for a weekly lottery so you stop buying lottery tickets" to "online casino skirting regulations by calling them tickets."
I think the final straw was when they changed the payouts on the double-or nothing coin toss from even bet to something like 0.9.
As someone who hadn’t heard of either company before this, that is absolutely wild to me. Both the fact they were doing something like that at all and that they still found customers to deposit...
online casino
coin toss
As someone who hadn’t heard of either company before this, that is absolutely wild to me. Both the fact they were doing something like that at all and that they still found customers to deposit large sums of money with them regardless…
Here's the thing. They initially pitched themselves as a way to build savings by avoiding the exploitative nature of gambling, ostensibly FDIC insured. You would receive a ticket to their weekly...
Here's the thing. They initially pitched themselves as a way to build savings by avoiding the exploitative nature of gambling, ostensibly FDIC insured. You would receive a ticket to their weekly lottery for every $25 in the account, and expected win rates and payouts were adjusted to roughly match interest rates of a regular online savings account. It was a frog-boiling enshittification, one that initially hooked me because of that pitch. And it worked....I was saving far more money than I was by blowing it on a power-ball ticket or two a week on average.
Then they soon added direct deposit, with a chance to double your paycheck, as well as bonus tickets. This diluted payouts a bit, but still within reason. In roughly the same breath, they added tickets for spending money, ala debit card and credit card purchases. It kind of undermined the savings aspect, as it didn't punish you as hard for spending money as the oldest system did. The purchases had something like a 1/100 chance of getting your purchase for free, which I did hit a fair number of times. Mostly for stuff like coffees or takeout, but one $200 purchase was nice. But by and large the the core mission was still intact, and it felt helpful rather than exploitative.
Then re-did the lottery to a daily lottery, with lower payouts but higher win rates. This was the beginning of the end. They switch from a mostly-delayed gratification method to a less-delayed gratification method.
And down the slide they went. They started introducing games like "Double or Nothing" and "Moonshot" methods where you could gamble with your tickets for a chance to win more tickets. This was the moment where there began to be outrage, as it was the tipping point from "help gamblers save money" to "exploit your gambler user base so you don't need to pay out their savings interest."
Then they added more and more games, as well as a way to straight-up buy the tickets and not just earn them from deposits/saving/spending. The payout math was so bad that it was literally better to use an actual casino app.
And I was pissed, I kept the direct deposit, and an auto-withdrawl from my other bank accounts, in order to retain the chance at 'double the paycheck'. But at this point the writing was on the wall, and when I realized I was mostly just gambling the same way as I did in a casino with my earned tickets, it still made me feel better than spending that money directly. But that's why that coin-flip payout ended up being the last straw....it turned it from a "fun risk-reward alternative" to "basically just a street grifter".
I'm glad they did it before their collapse in retrospect, but man it feels really bad happening to luck out of the worst-case scenario simply because they were exploiting me so bad.
Doesn't help the people already affected, but if you want to be sure your money is protected: FDIC bank find tool: Similar tool at NCUA for Credit Unions:
I had a great experience with Simple (nee BankSimple) — and then they sold to BBVA Compass, who sold to PNC, who shut the product down. So now I avoid any fintech banking service. For FDIC to say...
I had a great experience with Simple (nee BankSimple) — and then they sold to BBVA Compass, who sold to PNC, who shut the product down. So now I avoid any fintech banking service. For FDIC to say it's not their problem seems crazy to me.
Tangentially, while this is very unlike me, current events have me wondering whether I even want to keep my money in banks or the Treasury anymore.
what you are feeling is what drives people to crypto and gold and bunkers. there’s not a good solution. “the system” breeds grift, but “no system” breeds chaos. oth gold and cyRypto require larger...
what you are feeling is what drives people to crypto and gold and bunkers. there’s not a good solution. “the system” breeds grift, but “no system” breeds chaos. oth gold and cyRypto require larger systems in any event.
Credit unions are a "pretty good" solution, maybe not a perfect one. They are usually member owned, with member leadership. They generally have a non-profit structure. Deposits are federally...
Credit unions are a "pretty good" solution, maybe not a perfect one.
They are usually member owned, with member leadership. They generally have a non-profit structure. Deposits are federally insured via NCUA. They have lower loan default rates. They survived the last few financial crises quite a bit better compared to traditional banks.
Fair point. I'm inclined to think the dollar will lose all its value before I'll feel compelled to dive into gold or crypto. Having a system implies structure and rules that are followed, and I'm...
Fair point. I'm inclined to think the dollar will lose all its value before I'll feel compelled to dive into gold or crypto.
Having a system implies structure and rules that are followed, and I'm not sure we can reasonably expect that much longer. We are instead entering an era where consistently applied rules and protections are very much not de rigueur.
Money in a HYSA isn't any good if its gone because of deregulation or frozen under anti-terrorism pretense.
That’s seems true. But I also believe that the era of sensible rules and meaningful enforcement has been quite short, probably beginning around the same time as the federal reserve (1913 federal...
That’s seems true. But I also believe that the era of sensible rules and meaningful enforcement has been quite short, probably beginning around the same time as the federal reserve (1913 federal reserve act). 100 good years.
I think the only thing that can help is something i’m not that good at: building strong relationships and communities.
It's worth noting that FDIC insurance is actual insurance, not a government-funded coverage program. Member banks pay insurance premiums. Synapse was not a member, and it appears that they didn't...
For FDIC to say it's not their problem seems crazy to me.
It's worth noting that FDIC insurance is actual insurance, not a government-funded coverage program. Member banks pay insurance premiums. Synapse was not a member, and it appears that they didn't actually put all their customer deposits into the bank accounts they were supposed to put them in (where they would have been FDIC-covered). So the FDIC has a reasonable argument that they shouldn't be expected to cover the failure of a non-bank that wasn't paying premiums.
I definitely think if you are fortunate enough to have significant amounts to lose, it is worth spreading it out among several kinds of savings, to hedge your bets.
I definitely think if you are fortunate enough to have significant amounts to lose, it is worth spreading it out among several kinds of savings, to hedge your bets.
In the UK you'd need to ensure that spreading it out actually means spreading it out. Because if the different companies are trading arms or brands of a larger organisation, then you haven't...
In the UK you'd need to ensure that spreading it out actually means spreading it out. Because if the different companies are trading arms or brands of a larger organisation, then you haven't spread your risk at all, and they'd all be counted as one institution for protection, and this is limited to £85k per protected institution. This is under the Financial Services Compensation Scheme (FSCS)
Just for anyone in the UK here is a Bank of England pdf listing the umbrellas and their subbanks as of 2021. Is does appear to be missing building societies however.
Just for anyone in the UK here is a Bank of England pdf listing the umbrellas and their subbanks as of 2021. Is does appear to be missing building societies however.
Wow, that seems like a maze. I actually meant really spread it out-- savings, commodities, real estate, etc. Here in the US, I feel like just putting savings in 2 different banks is not that much...
Wow, that seems like a maze. I actually meant really spread it out-- savings, commodities, real estate, etc. Here in the US, I feel like just putting savings in 2 different banks is not that much safer, even if they are not specifically connected. Not sure the banks here learned anything after 2008 bailout, except the government will protect them before they protect US citizens.
It's an unfortunate situation. Levine had a good analogy; this is essentially like if, when banks used paper records, someone accidentally spilled coffee on the documents that had your balance....
It's an unfortunate situation. Levine had a good analogy; this is essentially like if, when banks used paper records, someone accidentally spilled coffee on the documents that had your balance. And that someone then passed away.
Yotta can say, "hey, I dutifully passed the money to Synapse, which we have a signed agreement with dictating X, Y, Z - there's no malpractice here." Evolve can say, "Hey, we never had that money. Don't ask us for it". Synapse is dead.
Unfortunately, the depositors will probably just be out of luck.
Stating the obvious, this is bad. These people did not “gamble” on some meme stock or coin, these were literal savings accounts, supposedly backed by insurance.
There should be no way to lose the proceeds from your home sale from what basically amounts to depositing them. I’m sure this will entail a legal mess for years to come. I truly hope those affected will see compensation… but given this article, I’m not really too positive.
The issue is that the entity that's at fault really is Synapse, and Synapse is already completely dead and liquidated, so there's literally nothing to extract compensation from anymore. Both Yotta and Evolve can argue that, from their angle, they were doing right by the customers.
Surely there's some kind of class action case possible over the "FDIC insured" claim? Anyone who made that clain for one of these accounts ought to be criminally liable, personally, for people who trusted that insurance.
The FDIC guarantee automatically garners a certain trust for a company. But it sounds like it was actually being applied fraudulently, here. And that's the real crime, because that fraudulent claim made people trust these (non-insured) accounts. And when the company imploded, of course the FDIC doesn't feel like compensating random debt that they had no connection to previously!
The question is, class action against who? The contract was with Synapse, the defunct entity. Class Action isn't a magic wand, it's just a way to combine a lot of individual lawsuits. As long as Evolve and Yotta never used the FDIC claim, they would seem to be shielded.
Yotta did advertise that the accounts were backed by FDIC. Including this bit from their "Your funds are not able to be processed by ACH announcement" during the Synapse disaster.
Here's their snapshot from Nov 25 2020. The big headline:
Win up to $10 million by saving in an FDIC insured account.
The claim was still their as of Nov 11, 2022, though much more muted:
While I can't say for certain where the line should be drawn for "claims to be FDIC", I'd say it's any time they imply that they are FDIC insured, if not directly by them, by where they are keeping your money. 2023
Today in 2024, there is no mention of FDIC on the main page. It's still in their FAQ. On their linked historical banking in the fine print, the only reference to FDIC is in the fine print on that page:
Dear potential lawyers forming lawsuit: I'd like in on that please. Even though I somewhat minimized my personal damages, I'd like to see them sued into the ground so nobody thinks twice about pulling this shit again.
I'd also like to see them convicted for violating any number of gambling statutes.
All of the claims Yotta makes there are correct, though. None of them were broken.
While you are likely correct from a legal perspective, at best it's misleading marketing. And while I'm not a lawyer, if I had money to burn I'd be filing a suit to attempt to get through discovery.
The perpetual downplaying of that FDIC-insured claim makes me think they knew this was iffy. Notice how in that latest version, they make no claims about keeping your funds in one of those banks. I'd personally love to see a kind soul at one of these institutions leak the hell out of what was going on behind the curtain.
TBH I don't even really care about the specifics of that personally. I'd rather attack them from the proper angle of exploitation of gamblers as a market strategy by pitching it to them as an alternative to gambling.
I genuinely don't think so. As far as Yotta could tell, Synapse was a) creating a bank account with Evolve and b) moving the money there. That the money is now missing and Synapse has conflicting records with Evolve is a different issue.
But the promise was a) your money would be in Evolve b) Evolve is FDIC insured c) the FDIC insurance is passthrough (that is, if Evolve is insolvent, you would get the money, not Synapse or Yotta).
The only part that is false is a), and Yotta can likely prove with corporate contracts that from their angle, Synapse was doing the right thing. That they weren't, is something you should take up with Synapse.
It appears that, as often happens with these non-banks, what they were saying was perhaps technically true, but extremely misleading.
There was FDIC insurance involved: for Synapse's accounts at Evolve Bank and Trust, an actual bank. Synapse operated by having their own accounts at a real bank, pooling customer assets in them, and (supposedly) keeping track of how much was associated with each customer. If Evolve Bank and Trust had failed, there would have been FDIC coverage (though it's not clear to me whether the $250k limit there would have been per Synapse customer, or for the entirety of Synapse). But Evolve didn't fail: instead, the actual balance Synapse put in their own accounts was less than the amount of customer deposits they were supposed to put in those accounts, for whatever reason.
If someone tells you, "Give me $1,000, I'll put it in my account, and it will be FDIC-insured when in my account", the FDIC insurance part is not technically a lie. In this case, it was the "I'll put it in my account" that was a lie.
I don't think that Yotta pooled money. If nothing else, that would defeat the purpose of FDIC insurance to begin with. I'm pretty sure Yotta just made a new Evolve account per user.
Synapse doesn't directly deal with any end users. The chain was Yotta (the pseudo-bank), who used Synapse to move money to and from Evolve (an actual bank). Synapse exploded, and misplaced money.
Yotta might not have directly, but it appears that Synapse was pooling money into a (potentially single) FBO / for-the-benefit-of account with Evolve. This post seems to suggest that, as does this one. Thus Evolve, at least, did not have accounting of what money was in the account of which end-user: Synapse was supposed to keep track of that, and that seems to be a major part of the problem.
Edit: Hmmm... after looking at this a bit more, I'm not entirely convinced that this situation is as it seems, and that the FDIC has no involvement or responsibility at all. It appears that the FDIC has a pass-through system such that it does cover deposits of customers of non-banks that the non-banks put in FDIC-insured FBO accounts at banks, and that coverage is per-customer, even when the accounts pool customer assets (see here and here). That coverage would be based on which assets in the covered account belonged to which individual customers, according to the records of the fintech/non-bank. This would mean that both Synapse and its clients like Yotta were not lying, or even being misleading, when they said the accounts were FDIC insured.
The problem here is that because Synapse's records didn't make sense and didn't have the same total as the amount in the FBO account, that's a specific failure mode that isn't covered by the FDIC, even though the FDIC did nominally cover those accounts, using Synapse's records, not Evolve's. It appears that the FDIC recognizes this is a problem, and is making rules changes to ensure banks have direct access to non-bank records of individual customers.
Why was it applied fraudulently? The ToS said that funds stored in Evolve bank on behalf of the user would be FDIC insured. They're not wrong; they are, and still are, FDIC insured.
Hoo, is that a naive statement. Banks robbing people is extremely common, which is why the government is constantly writing new laws to restrict what they can do. It wasn’t that long ago that they made mandatory overdraft fees illegal.
That aside, this is a horrible story to hear. But it’s yet another notch in my “don’t trust tech startups with money” belt. Sadly, not everyone has such a belt, and even fewer people both knew the name Andreessen Horowitz and how it should mean “run for the hills”. The fact that there is any financial institution that doesn’t keep extremely detailed records of what’s happening to that money is such a sin that everyone involved with that decision should face punishment for it.
While I am a fan of fintech in theory, in practice it seems to have increasingly become an industry fueled by a blatant disregard for the rules, privacy, the rights of individuals using their products, and in spite of the high and easily measurable risks, security. I remember not too long ago there was a startup that was trying to bypass banks not offering an API by asking users to give them their online banking usernames and passwords, something that was usually explicitly against their agreements with the banks. And these schemes usually work because the average person doesn’t know anything about how our financial institutions work and don’t realize why what they’re doing is a bad thing.
You're referring to Plaid? They're still around and AFAIK doing fine, somehow. I agree that it's bonkers; I've used several services that assumed I would be fine giving away my bank credentials via Plaid. It continuously astonishes me that everyone seems fine with it.
I came across them recently; they integrate with the mandatory open banking APIs where I am, so no shared credentials, but I actually stopped to read the terms because something felt a little odd about this third party being in the middle of the transaction in the first place.
Turns out one of the bullet points right near the top was that they'd share my overall account balance and recent transactions with the partner in question. For me to make a one-off payment to that partner. What the actual fuck?!
Issue of convince. Banks not offering an API in this day and age is insane, so someone fills the gap. 90% of the users don't even understand what they're done, some small % of the rest decide it's worth the risk for the ease of use.
YNAB and Mint(when it was a thing) only function because plaid exists. I'd prefer to keep my info completely internal, doubly so when you're paying for a product like ynab, but the only other option is to just do it manually. If the whole reason you're attempting to use such a product is because you're bad at the manual part, well you really have no other option.
The problem is when services ONLY offer plaid instead of allowing you to use banks that do offer such APIs. With that option, people could move their money into banks with APIs and that would move the market.
To my knowledge that didn’t happen, and because of Plaid’s use of these unethical practices, Plaid became these banks de-facto APIs, which means another middleman gets to make their money off of you. Hooray? But I’m not in finance so I can’t tell you if that’s how things are or not.
I’m pretty sure they’re the ones I was talking about. As @Greg mentioned, they’re still pretty bad even when they aren’t asking for your credentials.
Starling Bank in the UK (online only bank, one of the so-called challenger banks) are starting down the road of enshitification , scrapping interest on their current accounts, thereby forcing people who want to continue earning that meagre rate into some new form of savings account, but many, like me, leveraged their 'Spaces' feature to segregate piles of money being saved for different reasons. With their new savings account you can only have one of them, so no easy view of how your savings for holiday, car maintenance, and computer hardware are going. And if you leave them in your current account you're just getting inflated away.
It's much worse than their current offering :(
I'm a Starling customer and I'll be waiting for the savings accounts to launch before I call it a "bad" thing.
I've always been surprised by how high a rate you could earn on their current accounts and wasn't shocked that it is going away once they have proper savings accounts. I'm 99% sure they will give us the "spaces" feature, or something that does basically the same thing, on the new savings accounts.
Having been either a customer of or worked with basically every bank (older than 20 years or so) in the UK at some point I still consider them by far the best. Or least bad.
It looks like it is partially launched now and tightly integrated with the existing spaces feature.
I can create a new "space" as a savings account now. For some reason I've only got fixed type available right now, but apparently easy/flexible should be a thing.
Interesting. I'll fiddle with it over lunch, thanks for the heads up
I've got a Starling easy saver open now. One single savings account and no spaces feature. I'd say that's a significant step backwards.
Confirmed it with Starting Support and gave feedback on my disappointment about the reduction of utility of Spaces
I think a lot of things work well in theory but have some inherent tendency to attract the wrong kind of person and so never realize their potential.
This seems like a really tough one to unpick. The entire purpose of FDIC insurance is to protect normal customers who can’t reasonably be expected to spot highly complex financial fuckery that could put their deposits at risk - and who often literally wouldn’t have access to the information that would reveal that fuckery even if they had the expertise to understand it. But if the fraudulent part is the claim that the accounts were insured in the first place, what then?
Failing to cover the deposits screws over innocent people and tanks the trust in what the FDIC is there for. Covering them erodes the legitimacy of the scheme’s rules and incentivises other financial organisations to claim they have coverage when that’s anywhere between a grey area and an outright lie.
I think on balance they really have to cover customer losses and come down like a ton of bricks on the perpetrators, but that doesn’t do a lot to guard against the same thing happening again in the future, and I’m not really sure what would.
Yeah that part stood out to me too. So how does one actually verify that a bank is actually backed by FDIC? Is there like an FDIC page with 'here are the banks we cover...' or do we just have to assume they're not lying and hope for the best?
Edit: turns out there is indeed such a page
Edit 2: some others I found out of curiosity. Could help someone else too:
NCUA (credit unions)
SIPC (securities)
FINRA (securities)
This whole thing has really piqued my interest now! Looking at the terms of service for Yotta, one of the companies mentioned in the article, from before the issues with Synapse became apparent:
(Emphasis mine)
That language is conspicuously absent from their current terms.
So yeah, if you'd signed up a earlier in the year, diligently checked the full terms of service, and verified that the partner banks held FDIC insurance you'd still be screwed by not knowing that Yotta and Synapse's claims to pass through the insurance of those partners weren't legally valid.
[Edit] Added emphasis
Wow what a nightmare and headache all in one. I feel for anyone caught up in this, seems very easy to fall victim to this when the disclaimers are that confusing. This entire thread made me realize that I didn't actually know if any of the credit unions or companies that I use were actually insured. I assumed they were, because they're large institutions and most have physical locations that I can visit, but I technically did not know for sure. So I looked them all up and turns out all are insured except for my damn 401k which blatantly states 'not FDIC-insured' on the bottom of their main website. Fucking hell how is that even allowed.
I don't think 401k can be FDIC insured- it's a security, not a bank account. It may be SIPC insured though (and may even have supplemental insurance on top of that). SIPC won't help you if the market crashes, but it is supposed to protect against a failing brokerage.
Good point, but unfortunately for me I did not find them in the SIPC search either.
I took a look at the SIPC mission page and am even more confused now.
I thought it might be that the SIPC simply aids you in getting your money back but doesn't actually give you any money if there's no money to get back (like the brokerage going bankrupt). But then I skimmed through their founding documents and it really does seem like they insure your securities up to $500,000 or $250,000 cash. I'm not a lawyer or lawmaker but it reads to me like they have a large reserve on hand and they'll reimburse you for whatever the bank/brokerage/company doesn't have (up to those limits) and then try to liquidate the company to recoup as much as possible. Sounds like insurance to me but I might be misreading or misunderstanding things (§78fff-3 specifically).
Regardless, I'm glad at least my other retirement accounts are SIPC-protected. Now I guess I'll be looking into possibly moving some of the non-protected 401k into those protected accounts instead. I'm thankful for this thread for opening my eyes to the topic and making me consider things I never really previously thought about.
Brokerage/retirement accounts are somewhat different than bank accounts in terms of safety, and coverage is somewhat less important so long as the firm is legitimate.
For a bank account, you give your assets to the bank, and they use them for lending/etc, keeping some amount in reserve. A legitimate bank, which hasn't broken any laws, can end up no longer having enough assets to cover customer accounts, which is why FDIC insurance is important. If the bank becomes insolvent in a normal way, customer assets can be lost. But this is why you can get interest. The money is, in some sense, not yours.
For a brokerage account, the broker holds the assets for you; while there are some complexities, like lending shares to short sellers, the broker largely can't use your assets for their own benefit, and FINRA requires that customer assets and broker assets be kept separate, rather than commingled. If a broker becomes insolvent, that should have no effect on the customer assets. Those should all be there: they are still 'yours'. Usually, the resolution, from a customer side, is that the account assets are just transferred to another broker, potentially with the SIPC coordinating that. This is why you don't get interest on cash balances in a brokerage account, unless you have a sweep feature that moves that cash into an interest-bearing product, in which case that product may be insured (and may actually be FDIC-insured). If you have cash in a brokerage account, the broker actually needs to have that cash, and have that cash separate from their own assets.
The actual SIPC insurance becomes important when the broker has broken laws, and hasn't kept client assets separate. This was the case for, eg, Madoff, where he wasn't actually purchasing the securities he said he was purchasing for his clients, and wasn't keeping assets separate (because he was running a Ponzi scheme).
So the difference here is that, if you have an account with a reputable bank, you can still lose assets if the bank fails even through no fault of its own, and FDIC insurance is important in that case, whereas if you have an account with a reputable broker, you shouldn't need to rely on SIPC insurance unless the broker turns out to have been criminally disreputable.
Fantastic explanation, thank you.
Follow-up question then. What about in the case of a security owned by a broker? Say I have my 401k with a reputable company, and the actual money there is in their own Target Retirement 20XX Fund. If the broker becomes insolvent, what happens to that fund (and others they might have)? Like you mentioned that the securities would most likely be transferred to a different broker, but would that still be the case if a fund is operated by the insolvent broker?
I'm not really sure. A fund itself becoming insolvent is bad, and is something that wouldn't be covered by any insurance, including SIPC. But I'm not sure the extent to which funds created by a larger company are affected by the larger company's insolvency: I think that there is a separation of assets or potentially legal entities involved such that the fund's assets would not be part of the insolvency.
Credit unions also aren't FDIC insured...they have a separate fund through the NCUA (National Credit Union Administration). It's a similar setup, covering up to $250K.
It is valid. Any money that is in Evolve Bank & Trust is FDIC insured. The issue is that your money isn't in Evolve Bank & Trust, and no one actually knows where it is.
It’s an interesting distinction, actually. Does the insurance pass through to the end user in any meaningful way if they can’t guarantee whether or not it applies to them at any given moment?
If it were a bank failure, the question of where the money is would be moot from a customer perspective because that’s specifically what the insurance is there for. I think a very strong argument can be made that claiming the insurance passes through is equivalent to claiming the customer is covered by the insurance - and that claim would be fraudulent in light of what’s happened here.
Not that it helps much, given there’s no entity left to sue for fraud, I suppose.
Yes, because if Evolve bank had failed due to a lack of funds, then the user's would be protected up to the FDIC limit. The issue is that the bank "forgot", so to speak, their balance, not that they don't have enough to cover withdraws.
I’m not sure how that fits with your post before about the money not being in Evolve bank?
I can only see two possibilities here: the money is in an appropriately insured bank account, in which case the users will be guaranteed to get it back, or the money was mishandled and is not in a bank account, and if that’s able to happen then claiming that FDIC coverage applied to the customer was misleading to the point of fraud.
FDIC insurance is for insolvency, not fraud.
Furthermore, FDIC passthrough is a specific thing - it's in reference to when you have a bank account that you own, but another entity manages, and it's mainly there to specify that you own it, and thereby have the rights to reclaim the funds if the bank holding the fund is insolvent. There's no indication that anyone didn't file the paperwork such that the user's were not the owners of the Evolve bank accounts. Nothing incorrect there.
There are three entities in the situation, and the two that still exist can claim that everything was normal from their side: Yotta and Evolve. Yotta put the money (from their perspective) into Evolve through Synapse. Evolve never got the funds. Synapse probably fucked it up. Synapse is already liquidated, though.
The claims that FDIC insurance applies is correct.
Well, this whole conversation is happening because of Synapse's insolvency, so I don't think it's unreasonable to look closely at any claims around insolvency insurance being passed through to the customer, even if the final conclusion is that they don't apply.
If it's functionally possible for Synapse, or any other entity in their position, to claim passthrough insurance but not then make the deposits on the customers' behalf then the concept of "passthrough" is so misleading as to be effectively meaningless.
Any maybe that's the takeaway from this whole situation: that FDIC passthrough is meaningless and either needs tighter rules or expanded coverage. But if that's the case then that alone is a very important development and I think shrugging and saying that the claims were technically correct (something I'm still not entirely sold on) undermines the significance of the changes that are needed here.
FDIC pass through isn’t meaningless, it’s just a specific thing. Here’s the point: it’s about clarifying who really owns the account.
Let’s say the accounts weren’t pass through insured and Evolve failed. Then Synapse, as the one directly managing the account, would get the FDIC insurance money.
Because it is passthrough insured, the customer would get the money in the case Evolve was insolvent. But Evolve was never insolvent, so FDIC insurance of any kind of is irrelevant.
If you think that’s misleading, then you’d need to ask that question of the federal government who named it.
That's fair, and I probably should have said "so misleading as to be effectively meaningless to the customer". In this situation, from a customer perspective, Synapse being insolvent is functionally equivalent to Evolve being insolvent without insurance.
I see your point about the specifics, I can understand that being relevant from a technical perspective in distinguishing between different potential scenarios, but there's a reason that banking has this kind of insurance in the first place: because consumer confidence in the system is essential and expecting the average person to do their own research on such a complex topic simply isn't realistic.
If FDIC insurance can't be reasonably taken to mean "your deposit is safe in case of insolvency" by the average person, the entire mission of the organisation isn't fulfilled.
It isn't, though. Synapse being insolvent would ordinarily have no impact on end users. It only matters in this case for two reasons: 1) Synapse, which is being run by bankruptcy court to optimize returns, has already liquidated so much of itself that it can't afford accountants to track down the money they were supposed to move anymore 2) Even if Synapse is found liable, it's pointless, since they have no money.
The FDIC's scope is narrow and it's definitely not going to have an intermediary screwing up. Synapse isn't even the front-facing entity, no customers knew what Synapse was to begin with.
In the end, the lesson is that you need to make sure your money is actually in an FDIC bank account. If it's through a proxy, ensure that you have the account and routing number and do funding checks.
Think of it like an analogy in a analog world. It'd be like if you mailed money to Evolve to deposit, the mailman put it in entirely the wrong place, but the mailman came back and said "yep I deposited that money" then the mailman got in a horse accident and died and now no one knows where the money is. The FDIC isn't responsible for the mailman.
But it did happen. It did have an impact. The fact that the money is gone and there's apparently no recourse would seem pretty damn equivalent to me if I were that customer.
I'm trying to be open minded here, but I'm really not understanding how you don't see this as a call to action at the very least? There are all kinds of potential fixes to stop it happening again:
And sure, there are probably holes in those, I thought them up in two minutes, but hopefully you see what I'm getting at.
This is literally what the FDIC is there to prevent: consumers who acted reasonably having their money disappear through no fault of their own. They say it on the very first line of their about page:
And it's not like that's some great act of altruism and justice - it's a simple acknowledgement that the banking system doesn't function if people don't trust it, and that "it's pointless, since they have no money" needs to be prevented in advance.
I'm not saying the FDIC are necessarily responsible in this case. I absolutely am saying that at a bare minimum this case has exposed a significant loophole in the underlying purpose of their insurance scheme and that needs to be rectified.
And I would absolutely be saying the same things as I am now if that mailman had "FDIC insured deposits" painted on the side of his horse.
It would suck pretty bad as a customer, I don't disagree. But that isn't the FDIC's purpose.
The FDIC exists because banking has a specific vulnerability to liquidity crunches. Limiting the outflow by giving a floor to customer confidence therefore has a broader economic principle. It's scope is very limited to bank insolvencies, where the withdrawals exceed the liquidity of the bank.
Let's say that a bank is just defrauding you; you deposit money, they just say "lol" and delete it. Would the FDIC help you there? No, actually, they wouldn't. You'd have to make a civil tort against the bank. The loss of user funds is always possible. The FDIC protects against one specific scenario where you can lose your money.
This seems like a one-off unfortunate incident where an intermediary died and caused chaos. Maybe it'll cause people to think twice about pseudo-banks and cause more people to deposit directly with banks. Maybe that's not even a bad thing? But it's not going to cause any widespread doubt or damage in the financial system. So there's not going to be any movement from the government.
Nothing Yotta bank said was wrong about FDIC insurance. It's more that the FDIC is not some magic shield that protects your money against any and all possibilities. It is only a shield against cases where a bank's liability exceeds its assets. If your money is loss for other reasons, that's not its problem, and has never been.
Is what it is. Unfortunate things happen all the time, unfortunately.
Again, fair - I probably should have been more specific in saying “if loss of funds due to insolvency is in any way possible” - because that’s the reason people aren’t now able to sue Synapse for mishandling their money.
You’ve got a lot more faith than me in people’s ability to distinguish between a bank and a pseudo-bank!
Maybe you’re right, maybe it’s too small to be on the radar. Seems a shame if that’s the case though, because I can’t see any real downside to the potential fixes - especially the ones that make it clearer for customers to make that “bank / not bank” distinction.
Sure, but I still think that “banking technology provider that holds consumer funds, with liability that exceeds its assets” isn’t an unreasonable entity to at least consider bringing into the fold there.
It's not the same scenario. The reason why the FDIC protects against bank insolvency is that liquidity runs are contagious, that is, one bank having a liquidity issue is likely to cause another bank to have liquidity issues, and so forth.
That isn't the case with intermediaries like Synapse. They don't lend out user funds, and the issues that caused Synapse to ultimately fail as a business will not have any affect on other banks, pseudo-banks, or banking interface companies. Which is why they won't be "brought under the fold". They aren't related.
The FDIC does not exist to protect consumers from cases where entities wrong them and become liquidated before they can get their due. It is to prevent contagious bank runs.
I don't think there's an issue with Yotta claiming the accounts are FDIC backed. They are. This is more in line with a case where the bank defrauds you (although, I don't think it's malicious in this case). Which the FDIC has nothing to do with. If you deposit money, and a glitch in the bank's system yeets it out, that's more similar to what's happening here, the glitch is just entangled with Synapse's collapse in this case. And in the situation where the bank's systems glitch and delete your money, the FDIC is not helping you.
#2 is the part that really bites in this circumstance. I'm familiar with the term "judgment-proof", but it feels fundamentally wrong that a middleman that they likely never even knew about can be the cause of so many people losing their money with no recourse.
Something that might be worth trying is getting it clarified that middlemen like Synapse can be regulated by consumer financial protection bureau.
But that takes legal or regulatory changes
Yeah, but it also says that they can amend those terms and if you keep using them you agree to them. So it would appear that at one point they lost their ability to be covered by FDIC or more realistically they discovered that it was never the case in the first place and didn’t bother to tell anyone about it.
But it’s not like it matters much anyways because nobody reads those things anyways.
See the comment by ahatlikethat below.
I saw it after, thanks for pointing me to it though!
I was curious about other types of accounts, like investment brokers and stuff like that, so I went digging and found some others and added it to my original comment. Useful to know if you use investment companies that are neither banks nor credit unions, e.g. Vanguard or Fidelity.
Yeah, turns out they were just lying.
They really need to come down hard on the perpetrators here. Significant jail time for the executives, and complete liquidation of their personal assets to make their victims whole.
While we're at it, no sending them to rich people prison. Put them in the same prisons we put thieves, drug dealers, and murderers in.
Kill one person directly, go to jail. Kill ten people by applying one micromort to 10 million customers, get a golden parachute.
The tricky part is that there isn't really any "perpetrators". It's just an unfortunate situation, the modern banking equivalent of someone spilling coffee on your bank documents and irreversibly damaging them.
Lying about being FDIC insured doesn't just "happen", some of the people there decided to do it. Doesn't seem impossible to gather their communication info and figure out who's responsible.
Even if it was done out of negligence/ignorance, that's a terrible excuse when dealing with people's hard-earned money and it shouldn't be acceptable.
I don't see how they lied, if you read the ToS it's fairly explicit - your money is in Evolve bank, Evolve bank is FDIC insured. But that was never the issue; the issue is that the intermediary misplaced the deposits, and the intermediary is dead.
We know who's responsible: Synapse. And Synapse is already fully liquidated. So there's no point in bothering - you can't draw blood from a stone.
So... The money isn't in Evolve bank and the ToS has been broken? It shouldn't matter where the negligence lies, there should be actual consequence for whoever messed up.
I'm not American, so I don't know how this law works. But it sounds like there's no way for these people to get justice or be made whole?
The negligence is by Synapse. Synapse would probably end up being "responsible", as Yotta can claim that they broke the contract Yotta had with Synapse to move the money into Evolve, but the issue is that Synapse is not just bankrupt, it's essentially fully liquidated. Can't draw blood from a stone.
If you commit a murder, then die of natural causes before you're jailed, it's not like they're going to bother trying to charge a dead man.
The people with missing deposits are probably just outta luck.
Well they could go for a criminal case against Synapse executives. I have no idea if there is criminal case to be made though.
What would be the crime?
Where did the missing money go? There could easily be a crime but it would have to be proven.
It could be, but it’s more likely than not just misplaced in the chaos of a dying company.
Ultimately, that’s be up to prosecutors to pick up, and not on the depositors.
Yeah this just sounds like embezzlement., or just accidentally misplaced into some executives' prrsonal bank accounts.
It doesn't have to be. I've dealt with the books of a lot of distressed companies, and especially once they're big enough to not have a single financial person things can get lost really easily. There's a credit card on the books. Does it exist? Maybe. Do we have the records of who it's with, how to access it, and who is the legal owner of the account? Maybe, maybe not.
At a current client, half of all of the accounts were tied to the personal cell phone number of someone who hadn't worked there for 18 months before I came along. Administrative cruft builds up over time, and if someone isn't on top of it all remarkably large sums can become inaccessible. You haven't lost them, quite, because you're still the legal owner, but getting back in is a three-day administrative headache. If you don't have the skilled and knowledgeable staff to wrangle those headaches, it gets even worse.
Damn... That's just like technical debt in software... I guess we could call it "Organization Debt"
It's more directly equivalent to the person who committed fraud against you dying penniless tbqh. It wasn't an accident, but where do you get money or justice from?
I don't think there's any reason to assume ill intent. It's not like Synapse deals with any end-users in the end.
I'm pretty sure putting in a contract that the funds you're given ate passthrough FDIC insured when they aren't is fraudulent and not something that happens on accident. The fact that they've since removed this from the contract makes it pretty clear to me that there was ill-intent at some stage.
They are FDIC insured, though. It wouldn't even be up to them whether or not there's passthrough FDIC insurance to begin with. That isn't the issue; no bank is failing here. It's rather that the record of the customer's balances are off.
There's three entities in this situation: Yotta, a financial services company which offered savings accounts through Evolve bank, Synapse, a company used to interface with banks, and Evolve, a bank.
Yotta promised customers that they would make an account with Evolve, which would be FDIC insured, and move money there. The FDIC part is still absolutely true. And from Yotta's perspective, they did move the money there.
Synapse evidently did a bit of trolling. But they're also dead, and liquidated, so there's not much to take responsibility for.
Evolve never got the money, from their perspective. They're still fully solvent.
Please put your money in a local or federal Credit Union, stopping gambling your money people.
Gambling by putting their money in an account that appeared to be legitimately held and backed by government insurance?
Correct. A lot of these "man in the middle" financial institutions fall into grey zones for the FDIC. I'd rather keep my money directly with an institution that holds the actual money. I do get the allure of using a great looking fintech, but there are some gambles made for these companies.
I see what you're saying, but it feels a bit uncharitable to hold the customer responsible for recognising that when the whole purpose of the FDIC is recognising that customers can't reasonably be expected to make those assessments for themselves.
I don't think the problem is fully on the FDIC here, it's that these companies are putting the customer in an awkward situation. In theory it appears that the FDIC should be covering the customers money. However, the company has created a place where you can put your money that isn't 100% within the jurisdiction of the FDIC. They want the money there but they got into a bind.
I agree I want this to work out for consumers but that company did something wrong.
Oh yeah I don't put this on the FDIC either, I meant that the FDIC and equivalent schemes are only necessary because the banking system is complex and opaque enough that we've collectively decided that caveat emptor isn't applicable. When the customer can't reasonably be expected to do their own due diligence, the accepted stand in is "in the worst case, am I insured"?
Assuming that the article is accurate in saying that the contract explicitly claimed deposits were insured, I don't think a reasonable person should be expected to stop and think "is this billion dollar organisation straight up lying on the contract I'm agreeing to?".
But can you justify requiring the FDIC to change their coverage simply because a business lies about it?
I don't have a good answer on that one - I'm not even sure if there is one, to be honest - that was my first reaction on reading about this. Really the only thing I'm specifically saying in this side thread is that the customer could've done everything right and still lost out; I think it's harsh to characterise them as gambling when they look to be victims of a very brazen fraud by a very large, very well funded, ostensibly legitimate company.
I think you should be expected to do that. It's your money and you are ultimately responsible for what you decide to do with it. It is not difficult to check to be sure that an institution is covered by the FDIC. I wouldn't say those people got what they deserved, and definitely Synapse is the villain for lying. I would love to see a way to force Synapse to make real restitutions. But I think Americans are way too gullible and eager to believe in shiny new "tech" shills. I hope at least this helps others be more cautious.
I actually tend to find myself on that same "people need to think more critically about things" side of the argument a lot of the time, but this specific case seems pretty egregious. You could correctly verify the banks involved, and your only theoretical recourse would be an understanding that the legal basis of their claim to pass through the FDIC insurance from the partner banks was invalid.
The lesson here should be to not trust passthrough FDIC insurance to be 100% safe. This was the equivalent of handing your cash to a friend to deposit at the bank for you. The cash is FDIC-insured once it is at the bank, but while it's in your friend's hand it's not. The juice was not worth the squeeze.
I think it's kind of absurd to expect the average person to know what passthrough FDIC insurance even is and how it differs from real FDIC insurance, especially while they're being presented with a contract that straight-up lies to them about it. You shouldn't have to be an expert in financial policy to not be the victim of fraud like this.
Passthrough FDIC-insurance should not exist IMO. There's no reason that a financial entity (WealthFront for example) should be able to advertise that they have millions in FDIC insurance because they split your deposit between banks that have $250k coverage each. What if shit hits the fan just as your money is being transferred through Wealthfront? It's crazy that we're allowing this at all.
However, if I were to give advice to a loved one, I would insist heavily that they go directly to an FDIC-insured bank and you can search on the FDIC website if that bank is covered or not. That's still simple enough to do for most people. Even going to a local branch of a well-known bank is enough.
The people that got burned here literally were hoping to gamble and went to a startup that offered lotto balls in lieu of boring old interest rates. For some things, it's just better to be vanilla and follow the crowd..
That doesn't appear to be the case. The legal claim to pass through the FDIC insurance was valid. See here, or here, for example.
The coverage would have covered the bank (Evolve) becoming insolvent, and would have done so using Synapse's records of the balances for each customer (since the accounts were pooled). In principle, Synapse becoming insolvent would have no effect on customer assets, and would not need insurance, because Synapse would be depositing the entirety of customer deposits into Evolve, and those assets would not be Synapse's or vulnerable in insolvency. But what was not covered was the case where Synapse didn't actually deposit the entire amount into their account at Evolve, and didn't keep good enough records of what amount actually belonged to each customer in the pooled account.
I came into this thinking that it was a set of completely sketchy companies making fraudulent or at least very misleading claims about FDIC coverage, with the FDIC having no involvement. Instead, it appears that while the FDIC may be legally correct here, it may be the FDIC that allowed their insurance to be both handled and advertised by intermediaries in unsafe and misleading ways.
I was mercifully spared from the collapse of Yotta because their enshittification process transitioned rapidly from "earn tickets by saving for a weekly lottery so you stop buying lottery tickets" to "online casino skirting regulations by calling them tickets."
I think the final straw was when they changed the payouts on the double-or nothing coin toss from even bet to something like 0.9.
As someone who hadn’t heard of either company before this, that is absolutely wild to me. Both the fact they were doing something like that at all and that they still found customers to deposit large sums of money with them regardless…
Here's the thing. They initially pitched themselves as a way to build savings by avoiding the exploitative nature of gambling, ostensibly FDIC insured. You would receive a ticket to their weekly lottery for every $25 in the account, and expected win rates and payouts were adjusted to roughly match interest rates of a regular online savings account. It was a frog-boiling enshittification, one that initially hooked me because of that pitch. And it worked....I was saving far more money than I was by blowing it on a power-ball ticket or two a week on average.
Then they soon added direct deposit, with a chance to double your paycheck, as well as bonus tickets. This diluted payouts a bit, but still within reason. In roughly the same breath, they added tickets for spending money, ala debit card and credit card purchases. It kind of undermined the savings aspect, as it didn't punish you as hard for spending money as the oldest system did. The purchases had something like a 1/100 chance of getting your purchase for free, which I did hit a fair number of times. Mostly for stuff like coffees or takeout, but one $200 purchase was nice. But by and large the the core mission was still intact, and it felt helpful rather than exploitative.
Then re-did the lottery to a daily lottery, with lower payouts but higher win rates. This was the beginning of the end. They switch from a mostly-delayed gratification method to a less-delayed gratification method.
And down the slide they went. They started introducing games like "Double or Nothing" and "Moonshot" methods where you could gamble with your tickets for a chance to win more tickets. This was the moment where there began to be outrage, as it was the tipping point from "help gamblers save money" to "exploit your gambler user base so you don't need to pay out their savings interest."
Then they added more and more games, as well as a way to straight-up buy the tickets and not just earn them from deposits/saving/spending. The payout math was so bad that it was literally better to use an actual casino app.
And I was pissed, I kept the direct deposit, and an auto-withdrawl from my other bank accounts, in order to retain the chance at 'double the paycheck'. But at this point the writing was on the wall, and when I realized I was mostly just gambling the same way as I did in a casino with my earned tickets, it still made me feel better than spending that money directly. But that's why that coin-flip payout ended up being the last straw....it turned it from a "fun risk-reward alternative" to "basically just a street grifter".
I'm glad they did it before their collapse in retrospect, but man it feels really bad happening to luck out of the worst-case scenario simply because they were exploiting me so bad.
Doesn't help the people already affected, but if you want to be sure your money is protected:
FDIC bank find tool:
Similar tool at NCUA for Credit Unions:
I had a great experience with Simple (nee BankSimple) — and then they sold to BBVA Compass, who sold to PNC, who shut the product down. So now I avoid any fintech banking service. For FDIC to say it's not their problem seems crazy to me.
Tangentially, while this is very unlike me, current events have me wondering whether I even want to keep my money in banks or the Treasury anymore.
what you are feeling is what drives people to crypto and gold and bunkers. there’s not a good solution. “the system” breeds grift, but “no system” breeds chaos. oth gold and cyRypto require larger systems in any event.
Credit unions are a "pretty good" solution, maybe not a perfect one.
They are usually member owned, with member leadership. They generally have a non-profit structure. Deposits are federally insured via NCUA. They have lower loan default rates. They survived the last few financial crises quite a bit better compared to traditional banks.
Because credit unions are there, not to make money, but to support their members/owners.
Fair point. I'm inclined to think the dollar will lose all its value before I'll feel compelled to dive into gold or crypto.
Having a system implies structure and rules that are followed, and I'm not sure we can reasonably expect that much longer. We are instead entering an era where consistently applied rules and protections are very much not de rigueur.
Money in a HYSA isn't any good if its gone because of deregulation or frozen under anti-terrorism pretense.
That’s seems true. But I also believe that the era of sensible rules and meaningful enforcement has been quite short, probably beginning around the same time as the federal reserve (1913 federal reserve act). 100 good years.
I think the only thing that can help is something i’m not that good at: building strong relationships and communities.
It's worth noting that FDIC insurance is actual insurance, not a government-funded coverage program. Member banks pay insurance premiums. Synapse was not a member, and it appears that they didn't actually put all their customer deposits into the bank accounts they were supposed to put them in (where they would have been FDIC-covered). So the FDIC has a reasonable argument that they shouldn't be expected to cover the failure of a non-bank that wasn't paying premiums.
I definitely think if you are fortunate enough to have significant amounts to lose, it is worth spreading it out among several kinds of savings, to hedge your bets.
In the UK you'd need to ensure that spreading it out actually means spreading it out. Because if the different companies are trading arms or brands of a larger organisation, then you haven't spread your risk at all, and they'd all be counted as one institution for protection, and this is limited to £85k per protected institution. This is under the Financial Services Compensation Scheme (FSCS)
Just for anyone in the UK here is a Bank of England pdf listing the umbrellas and their subbanks as of 2021. Is does appear to be missing building societies however.
Wow, that seems like a maze. I actually meant really spread it out-- savings, commodities, real estate, etc. Here in the US, I feel like just putting savings in 2 different banks is not that much safer, even if they are not specifically connected. Not sure the banks here learned anything after 2008 bailout, except the government will protect them before they protect US citizens.
It's an unfortunate situation. Levine had a good analogy; this is essentially like if, when banks used paper records, someone accidentally spilled coffee on the documents that had your balance. And that someone then passed away.
Yotta can say, "hey, I dutifully passed the money to Synapse, which we have a signed agreement with dictating X, Y, Z - there's no malpractice here." Evolve can say, "Hey, we never had that money. Don't ask us for it". Synapse is dead.
Unfortunately, the depositors will probably just be out of luck.