In another thread, someone asked about a rent collection service that no longer exists that had problems after landlords did not receive rents. I replied that the service itself did not keep rents. Instead, a behind the scenes middleman service went bankrupt and the rents never reached the landlords' accounts.

This (www.yahoo.com/finance/news/no-money-thousands-americans-see-223556135.html) article mentions a similar scenario where a middleman fintech firm named Synapse collapsed and went bankrupt. Customers thought their money was being held in FDIC insured bank accounts, but it turns out not to be the case. One person only received $500 on the over $280,000 that they thought was being held at an FDIC bank account.

The lessons learned from this that apply to us landlords:

1. When using any fintech service, check that your funds are deposited moved quickly into a real and separate FDIC insured bank account.

2. Lesson 1 applies even when the fintech service is offered by your bank. In that case, move the funds quickly into a separate bank so that there is no confusion about whether the funds are in an FDIC insured bank account.

3. Just because a service is backed by a big name venture capital firm does not mean that your funds are safe. In this case, the underlying venture fund backed company does not have the funds to hire outside accountants to reconcile its bank accounts.

4. Know what a fintech service looks like. If it is a new and exciting service offered by your bank, it most likely is a fintech service. If the service you are using says "Powered by "some online company name" ", you are probably using a fintech service. Your money could be caught up in the collapse of any of the underlying middlemen services along its path of transit. Even if you are given a routing and account number of an FDIC bank to associate with the fintech service, this may not mean that your funds are in the FDIC covered account. In the article, one customer thought that his funds were in an Evolve bank account.

5. If a service advertises that its "deposits are FDIC insured" through Evolve or any other bank, your money may not be considered an actual deposit or never reach the FDIC insured account that is correlated to you.

6. Understand what is covered by the FDIC. Covered items includes deposits, cashier's checks, money orders, and certain other official items issued by a bank. Certain prepaid cards are also covered by the FDIC. Here are some links.

www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance

www.fdic.gov/deposit/deposits/prepaid.html

7. Wire transfers are NOT covered by the FDIC if the funds are not already deposited into an insured account. So if a company is sending money to your account through a wire transfer and you don't receive it, you are not insured for those funds being sent to you. Make certain that all sides verify that they have adequate wiring instructions. In select cases, it may be worthwhile to do a test transaction first.

Wire transfers are not typically reversible, but the sender's bank may be able to do something like a SWIFT recall if money was sent due to a bank's error or through fraud. The sender can also ask that their bank to request a freeze of the funds in the recipient's bank. If it is an international transfer, the sender has up to 30 minutes to cancel the transaction. Being able to recall the funds is very rare.

8. You can find out if your bank is insured by looking at this link. banks.data.fdic.gov/bankfind-suite/bankfind. Credit unions are covered under NCUA, a different insurance than FDIC.

9. As mentioned in another post, it may be worthwhile to have one or more backup mechanisms to receive rents in case funds get delayed or missing in transit. This might include ensuring you have savings to cover missing rents, staggering your rents at different times of the month to catch missing rent early and the minimize the possibility of loss, or using 2 or more services or rent collection mechanisms for different tenants.

10. Provide convenient automatic payment mechanisms to your tenants, but have a policy in place as to how to handle it if a tenant submits payment via your preferred online payment mechanism, but you don't receive payment.

Good advice in general, but I think it misses some important points about this situation...

1. All of these deposits were through Yotta -- which is an app where there is a "prize pool." People put their money into savings via Yotta for a chance to win $10,000,000. This number was later lowered to $1,000,000. The idea was that the more you deposited with Yotta, the more sweepstakes entries you received. Note that NO ONE ever won that grand prize. (One guy did win $500,000.)

Yotta than moved to "casino style" games where people made micro-transactions to play instead of it being deposit-based.

In other words, yes, the advice above is good in general -- but an easier thing might be to say: "Don't invest your money in something because they have a sweepstakes or casino-style games." That's not how "investing" should work.

That being said, this IS a very interesting situation...

We're still waiting for all of the information on this to come out. It is complex. From what it looks like now, it seems that money WAS put into FDIC-insured accounts. Yotta used Synapse as the "middle-man" -- and Synapse used Evolve for their real banks (which ARE FDIC insured). It looks like most deposits made it to Evolve banks at some point.

Synapse then filed for bankruptcy. This broke the connection between Yotta and real banks -- because they lost their middle-man. But the banks are fine. The problem is that FDIC insurance only kicks in when a bank FAILS. In this situation, no BANK failed, so FDIC insurance doesn't apply.

So, at first, it didn't look like a significant amount of the money was lost or stolen or anything. It was literally sitting in deposits in Evolve banks -- with no one able to access it.

But then, it gets weird. Evolve says that in April, they had 8 banks holding $109 million of Yotta customer's deposits. Then they said that a month later, they had only $1.4 million. And they said that neither Evolve nor Yotta customers received any funds during that time. Yotta says that, at the same time, Evolve should have had $112 million worth of their customer's money. Evolve says that isn't true.

So -- the $108 million dollar question is: where is that money? What happened to over $100,000,000 between April and May of this year? In April in was in real banks. In May, it was gone (even though Yotta says it should have been there.)

Yotta is currently suing Evolve -- saying that they "conspired" with Synapse to take/keep the funds during Synapse's bankrupcy.

So, it's a really weird situation. The funds went to FDIC banks, but the banks didn't fail, so no insurance kicked in. Synapse failed. But, again, the real question is going to become: what happened to $108,000,000 between April and May of this year?

Those are intriguing questions, John, and one that I've pondered casually on and off for year.

Most "money" these days is digital. That's how I can send $30 to my buddy to split a cab fare; from my bank, thru Uber's payment system or Venmo, then to his bank. Digits go here; digits go there, and nary a physical penny ever moves anywhere. Quite an elegant system to move 1s and 0s around. It can happen instantly if you pay a 3% fee; otherwise, it takes 1-2 business days during which time the "money" sits somewhere on a server. Hopefully a server cluster with several redundancies in case the system fails for whatever reason.

Likewise, "shares" of stock that my IRA holds are on a computer system somewhere. I'm not sure there are any physical stock certificates issued any more, and even if there were, they trade so frequently and fractionally that there'd be no hope of ever getting a "stock certificate" to the owner or following it after it has been traded a dozen times. Nope, I simply have a number of "shares"... again, 1s and 0s on a machine... somewhere.

Money already is a belief in value of something that may or may not be real. I mean, the paper is real, but it's the belief in the value of it that makes it worth something. Someone said, "On the day after the nukes drop, no one will care about his or her IRA balance." Maybe someone from the Fallout series. And now that believed in system has been abstracted even further. There may come a day when someone goes from birth to death 80 years later and never once holds a tangible piece of money in his or her hands.

It's all down to trust, belief in the system, and hopefully some good auditing to ensure no one is slipping in or removing out any extra 1s and 0s.

Fascinating!

Wouldn't have done any good in this situation. People checking their Yotta accounts could see their balance and everything looked fine.

I got caught in the eRentPayment debacle. They were awesome--until they weren't. Fortunately, because of timing, we only lost two rent payments. It still hurt. And nobody ever took responsibility.