Comment by kmeisthax
17 hours ago
If you talk to a lawyer (or, worse, a legislator, many of whom are also lawyers and all of whom are surrounded by them), they will insist up and down that this is a pretty standard custodial arrangement dispute and that the system worked as intended. And I would, very begrudgingly agree with that.
The legal system is perfectly capable of recognizing stolen property no matter how many layers of abstraction you put it through. The problem is always in the fact that the dispute resolution process is too expensive[0] to be useful. If you are defrauded for $10,000; but the legal fees for your representation will exceed that; then that juice ain't worth the squeeze. See also: Bricks and Minifigs.
In the Nine PBS case the judge correctly recognized Iron Mountain as a constructive bailee of Nine PBS's property and created a framework to retrieve their data. The problem is that this took almost half a year of legal work to get to the obvious outcome to make Nine PBS whole.
In Synapse's case, the problem is slightly different, because Synapse is not a bank, they are a reseller of banking services. That's the whole idea behind "fintech[1]" - that we can sell banking services while dodging all the regulatory compliance designed specifically to stop these kinds of issues so long as a real bank is involved. Saying their deposits are FDIC insured is like saying you have auto insurance because you happen to be riding a taxi. Technically correct but misleading and fraudulent. FDIC insurance doesn't cascade into your customers' accounts, because if it did, you'd be a bank.
[0] There's a similar problem with Bitcoin, where only a certain number of transactions can ever be processed per hour and thus it bottlenecks any higher-layer process that intends to use the Bitcoin blockchain as a settlement or dispute resolution system.
[1] "Fintech" in particular is meaningless as all banks are tech companies. They were one of the first adopters of electronic computers, online transaction processing, and a whole load of other things that seem utterly quaint now.
EDIT: changed "years" to "almost half a year", I was too lazy to do another Google search
> The problem is that this took years of legal work to get to the obvious outcome to make Nine PBS whole.
Not years. This whole "saga" has been going on for 5 months, and the suit against Iron Mountain was only filed on 28 July, so it just took weeks to come to this current arrangement.
EDIT: Toned down the comment. Leaving the rest, though, since I can't delete it with the reply below.
I changed it.
IIUC "FDIC insurance doesn't cascade into your customers' accounts" is not true in all cases, pass-through deposit insurance is a thing (https://www.fdic.gov/financial-institution-employees-guide-d...).
The problem in the case of Synapse was that they said they were doing that stuff, but were lying. (I think. The details of what happened there are apparently still not public. Also their bank seems to have been doing some sketchy things too.)
The biggest mess with Synapse seems to be the ledgers disagreeing: The banks, Synapse, Synapse's customers, and Synapse's customer's customers don't all agree on whose money is whose, and worse, the totals don't seem to add up.
> FDIC insurance doesn't cascade into your customers' accounts, because if it did, you'd be a bank.
It does cascade. It's called pass-through deposit insurance, it's codified in 12 CFR § 330.5 and 330.7. It has existed since the founding of the FDIC. Its enabling statute expressly provided that deposit insurance should be calculated based on the beneficial owners of a deposit account, regardless of in whose name the account is. [0]
Common arrangements include: HSAs, HOA accounts, UTMA/UGMA accounts, guardians and conservators, mortgage servicing accounts, escrow and title agents, payroll processors, brokerage cash sweep programs, prepaid cards, and yes, fintechs. [1]
[0] https://www.fdic.gov/notice-proposed-rulemaking-custodial-de...
[1] https://www.fdic.gov/financial-institution-employees-guide-d...