I followed the "Launch HN" of Yotta 4 years ago and deposited some money.
Evolve Bank says "we have determined that we are not holding your funds and you will not be receiving a payment from Evolve" (reconciliationbyevolve.com)
Yotta customer support says "According to the Synapse Trial Balance Report, your funds are with Evolve Bank & Trust".
It doesn't appear I'll ever be getting that money back. It's not enough that I'll hurt, but it'll make me think twice about trusting a non-bank fintech startup and their "FDIC insured" claims.
Probably not worth it but if it's less than about $5k you may be able to sue in small claims court. It's unlikely the bank will even show up and in that case you would win by default. Collection might be a challenge though.
"We don't know exactly which customer's money went into which bank(s)" gets a bit more spicy when you add the fact all the customers put in $265m and the real-banks only seem to have $180m of it, and AFAIK nobody has a clear explanation for the missing $85m. (~32%)
P.S.: I also find it amusing that they stored+hosted their financial ledger using MongoDB. Not that you can't commit massive financial mismanagement with any tool, but I was not a fan of the "NoSQL" evangelism of the 2010s.
I wonder if use of MongoDB creates a legal liability. I’m not up to date on the architecture of MongoDB but I am under the impression that it couldn’t be reliably used for this kind of thing?
(The problem here is not nosql, I believe you can do reliable accounting with ScyllaDB and Cassandra as long as you design things correctly. Basically only ever allow append/add but never allow update/delete. I’m not sure if this is true of MongoDB.)
The point is it’d be hard to loose data with Scylla as long as your only ever appending to the physical tables. I don’t know if MongoDB has this same attribute.
No idea, but why would that be necessary or sufficient to make it very unlikely to lose data?
Things can go wrong on many layers above and below the database, so the property you describe seems like an implementation detail of one particular approach, not something fundamentally necessary for sound bookkeeping.
I am not sure where the disconnect is. Having a database that can provide a permanent unalterable record of all transactions, even when running over a distributed network, seems reasonably important to me.
Are you saying it’s just as good to do this in the application layer? I respect that’s a possible option. Not sure I agree it’s a good option.
> P.S.: I also find it amusing that they stored+hosted their financial ledger using MongoDB. Not that you can't commit massive financial mismanagement with any tool, but I was not a fan of the "NoSQL" evangelism of the 2010s.
IANABanker but I suspect it was appealing for the 4 "real" banks because they barely had any work to do. From their perspective they had one single corporate customer called "Synapse" with an account that had a nice huge balance, and life was easy.
Contrast that to if the same sum was divided across thousands of individual accounts. Each would involve a certain amount of regulatory reporting, identity proof, pestering people to pick a beneficiary, monthly statements, etc. In addition there would need to be some way for Synapse to do deposits/withdrawals on the owner's behalf, and more of the sum would be FDIC insured meaning more money would be going out to the FDIC in insurance premiums.
If I understand it correctly, the bank had an account in which Synapse put money. The bank knows how much money Synapse had in its account. This is all that the bank was responsible for. The people who were customers of Synapse's customers, were three levels removed from the bank.
I am neither a lawyer nor an accountant, this is just my understanding of the article.
On the contrary, the banks aren't on the hook here! If they have a clear answer for "Yes, this customer's money is with you", then they pay. If not, they sit on the funds until some court orders them to do something with them.
The banks are winning big time here. It's their customers who eat the risk.
Ultimately the source of the loss is going to turn out to be some fraud at Synapse that caused their bankruptcy, but it seems like no one has details on that yet. But until then, the banks are sitting on unowned/untraceable free cash. They're loving this deal.
The problem here is knowing customer balances. A lot of the money is still out there, but it is not properly associated with any individuals so it's infeasible (at present) to get them back their money. Which is different than what FDIC is there for, which is to insure against a bank being unable to cover deposits, but balances have been properly tracked.
If Synapse (and apparently their partner Evolve) had been moderately competent at the job they set out to do, this could have been resolved a while ago. Instead the founder of Synapse is already off to a new venture and doesn't care about the people he screwed over, though I'm sure he feels bad when asked about it. Keep failing up.
The other banks involved all agree that the remaining balances are with Evolve, and that there isn't money that's been moved somewhere else. If there was, Evolve might be willing to say where, which they've been unwilling to do so far–it's very "dog ate my homework."
Given that the depositors still have active DDA agreements with Evolve, even if they sent the money elsewhere, they still have a responsibility to provide it.
> Given that the depositors still have active DDA agreements with Evolve, even if they sent the money elsewhere, they still have a responsibility to provide it.
I didn't say otherwise. But Evolve doesn't know what money belongs to what individual customer, Synapse maintained that part of the ledger (poorly). So even though Evolve has the cash (it appears), they can't distribute it to you because they don't know how much is yours, and Synapse was such a cluster that they failed at their primary job.
The feds need to come crashing down on operations like this. Perhaps you should need to be an accredited investor before you can put your $280K nest egg into a poorly regulated not-bank offering 'prize linked savings' accounts.
The accounts were genuinely FDIC insured. Evolve is a real bank.
But a few months before the bankruptcy, Evolve pushed Synapse to move the money into non-FDIC insured brokerage accounts. As far as I can tell, this was:
- a way to move a hole in the balance sheet from an FDIC insured to an uninsured place
- completely illegal, insofar as the only user consent was a manual opt-out, and some users weren't even sent emails about the change.
The “accredited investor” thing always seemed like a scam to me. Like if you have a lot of money we will trust that you know how to invest, otherwise we won’t let you.
> 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.
It seems they should be able to sue Evolve (the bank), given that they money is there, and there's proof that the money's there.
IE, the risk of 3x damages should be enough to scare the bank into paying out.
Yotta is who the people gave their money to. Yotta then used Synapse (which went bankrupt) to actually deposit the money into not-per-user accounts at 4 different banks. As-in, if you had an account with Yotta your money would be co-mingled with thousands+ other individuals into a singular Evolve account.
Evolve has no proof that your money is within the account Synapse held with them. As-in your money could be at one of the 3 other banks.
Yotta is the one being irresponsible for not keeping track of how Synapse split the funds. (Although arguable Evolve shouldn't keep co-mingled funds since that sounds like a KYC violation).
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This is why not only does your broker not hold your stocks for you, they also tell the holding company who owns them.
Yotta is speed running the financial system's previous failures.
>> 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.
Sounds like this would apply to other non-banks like Mercury.
Sounds like Synapse was a great money laundering schemme.
My conclusion is that all aggregators are bad. Economies of scale are bad.AI is bad. Anything that devalues humans is bad.
Everything has just become bad.
Reminds me of our blooming awareness of environmental pollution in the 70s.
Except instead of it being obvious, this 'financial pollution' is insidious, invisible.
Until small pockets of people are crippled. And that is why it persists-because enough people are spared this time and the inertia of the majority prevents action. Next month it will be another corruption exposed. Silicon valley bank, enron, Lehman, Salomon ....It just keeps going.
Evolve Bank says "we have determined that we are not holding your funds and you will not be receiving a payment from Evolve" (reconciliationbyevolve.com)
Yotta customer support says "According to the Synapse Trial Balance Report, your funds are with Evolve Bank & Trust".
It doesn't appear I'll ever be getting that money back. It's not enough that I'll hurt, but it'll make me think twice about trusting a non-bank fintech startup and their "FDIC insured" claims.
This is what Yotta's website looked like in 2020, where "FDIC insured" is the most prominent part of their pitch, and one of the homepage blocks is titled "You can’t lose": https://web.archive.org/web/20200630201639/https://www.withy...
Turns out, we could lose.
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