Fintech Update, 1/29 - 2/4
Hi! It’s Monday, February 5th, 2024
The Rundown
The U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) brought charges against the co-founders of HyperFund, an alleged cryptocurrency mining firm uncovered to be a $1.89 billion fraud. According to court documents, co-founder Sam Lee of Australia, along with Rodney Burton of Florida and Brenda Chunga (a.k.a. “Bitcoin Beautee” (you can’t make this stuff up)) of Maryland, “offered and sold investment contracts to the public through HyperFund’s online investment platform . . . [promising] between 0.5% to 1% daily in passive rewards until the company either doubled or tripled the investor’s initial investment.” Unfortunately for investors, the entire HyperFund apparatus – also known in various contexts as HyperTech, HyperCapital, HyperVerse, and HyperNation – “did not in fact exist.” The DOJ charged Lee with conspiracy to commit securities fraud and wire fraud, and Burton with one count of conspiracy to operate an unlicensed money transmitting business and one count of operating an unlicensed money transmitting business. If convicted, both face five years in prison for each count. Chunga pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud; she now faces up to five years in prison. Remember kids, crime doesn’t pay – especially when your crime is creating a fictional business to manufacture and sell fictional digital coins.
Blue Ridge Bank reported an annual net operating loss of $51.8M and a 191% year-over-year decline in earnings per share in its Q4 2023 earnings report this week. Alongside the report, Blue Ridge stated that it will continue to “rationalize” its overall business, “tighten” its lending business, and “assertively address . . . regulatory remediation efforts.” The earnings report comes only a week after the bank was hit with its second OCC consent order in 18 months – the requirements of which included the creation of a formal plan to demonstrate appropriate BSA/AML compliance, mitigate risks related to third-party partnerships, and maintain a capital ratio of 13%. [Full text] The OCC also prohibited Blue Ridge from forming new third-party fintech partnerships or expanding on existing partnerships without the regulator’s permission. Our take? Blue Ridge’s operating performance is another data point in the growing near-term headwinds for BaaS (also included: Blue Ridge’s first consent order, and recent FDIC consent orders against BaaS partner banks Choice and Cross River). It also may be an example of a first-mover disadvantage, in which early BaaS banks like Blue Ridge attract the lion’s share of early scrutiny while regulators scramble to catch up. We see the uptick in regulatory activity as a signal that the BaaS landscape is maturing, with regulators providing an important check on banks to ensure they build their fintech portfolios responsibly, with the appropriate level of oversight and third-party risk management.
Ecommerce financing firm SellersFi partnered with Amazon to offer credit lines up to $10 million to “eligible sellers . . . targeting larger sellers with revenues of $2.5 million per year, or more, that are looking to scale up.” SellersFi is Amazon's latest third-party lending partner, joining Marcus by Goldman Sachs, Parafin, and Lendistry.
Crypto mining firm Celsius exited Chapter 11 bankruptcy proceedings, following the company’s reorganization and the approval of by the SEC of its plan to repay creditors – which “includes the distribution of over $3 billion of cryptocurrency and fiat to Celsius’ creditors, and the creation of a new Bitcoin mining company—Ionic Digital, Inc.”
Indian fintech Paytm’s stock plummeted 38% in two days after the Reserve Bank of India ordered its affiliate bank to stop taking deposits, citing “persistent non-compliances.” On Thursday, the company announced it was ceasing all business with the bank in favor of other financial institutions. Paytm’s value is 77% less than its 2021 IPO price, the country’s biggest ever.
Small-business focused financial management platform BILL (formerly bill.com) partnered with payments platform Adyen to incorporate the latter’s acquiring and issuing service into BILL’s accounts payable and accounts receivable solutions.
Another round of layoffs hits fintech: On Tuesday, Paypal announced that it is cutting 9% of its workforce (~2,500 people) and Block cut 10% of its workforce across its Cash App, foundational, and Square business units (~1,000 people).
Business spend management platform Ramp announced its acquisition of AI-powered procurement firm Venue to accelerate its expansion into the procurement space.
The Reading Nook
The Economist looked at the early, underwhelming performance of Bitcoin ETFs.
Selected fundings
Usage-based billing startup Metronome raised $43 million in Series B funding led by NEA, with participation from existing investors Andreessen Horowitz and General Catalyst.
Crux raised $18 million in a Series A funding round led by a16z.