After Silicon Valley Bank’s implosion, Tellus disavowed any connection to the failed bank. Instead, the finance start-up called out its connections to two of the nation’s biggest financial institutions, suggesting that client funds were safe from the banking panic.
“We would like you to know that Tellus has ZERO exposure and DOES NOT have any funds with Silicon Valley Bank,” Tellus wrote to a customer who was seeking to withdraw funds from the start-up. “Our banking partners are
JPMorgan Chase
Bank and Wells Fargo Bank, both of which are FDIC-insured.”
These partnerships didn’t exist.
When interest rates were still near zero a year ago, a savings app operated by Cupertino, Calif.–based Tellus was advertising yields close to 4% on a website that touted its relationships to those big banks. It currently offers rates of 5% on its baseline “Boost” account. The firm’s website says that customers “earn more than 13x the average savings account while keeping your cash out of the markets.”
Tellus isn’t a bank, though, and it isn’t regulated like one. Its claimed connections to the traditional finance world are also misleading. When Barron’s asked JPMorgan Chase (ticker: JPM) and
Wells Fargo
(WFC) about their ties to Tellus, both banks expressed surprise.
“Wells Fargo does not have the relationship that’s described on Tellus’s website,” the company said in a statement to Barron’s. “We are working with Tellus to update the language on their website, and remove our company’s name.” Wells Fargo said it also disagrees with the description of itself as a “banking partner.”
JPMorgan said that it does “not have a banking or custodial relationship with the company.”
Days after Barron’s contacted JPMorgan and Wells Fargo about Tellus, their names disappeared from the start-up’s home page, which now simply refers to “leading banks” as custodians of customer funds.
Tellus App, founded in 2016, uses social media to advertise its “smart savings platform powered by real estate.” It has made about $100 million worth of loans, according to industry tracker Attom. Tellus says its mortgages are funded using customer deposits.
The company has played down the risks it takes with those deposits, Barron’s has found, even as the firm attracts millions in funding from tech-investment heavyweight Andreessen Horowitz and other venture-capital firms.
The lack of candor is rare in the world of banking, where federal and state regulations require a strict set of practices around risk and the use of customer funds. But start-ups, many backed by VC firms, have pushed the envelope with their fusions of finance and technology that fall under the buzzy “fintech” banner. These tech-banking mashups largely go unregulated as authorities face the challenge of applying analog-era rules to digital disrupters.
Those rules are straightforward: In order to take customer deposits, a business needs a state or federal banking charter. That charter comes with benefits like Federal Deposit Insurance Corp. insurance but also puts operations under the purview of regulators.
Tellus has no banking charter and, therefore, no clear regulatory requirements. Its customers’ cash isn’t backed by the FDIC, a fact the company discloses in several places on its home page. “Friendly reminder that Tellus is a financial technology company, not a bank,” the firm says.
A Tellus spokesman declined to respond to a detailed list of questions for this article, saying the firm has a policy of not speaking to the press.
Tellus says it uses proprietary insights into its borrowers’ finances to make low-risk, high-interest mortgages using cash that customers deposit via its smartphone app. It has alternately said on its website that its mortgages go to landlords with income-producing properties or to homeowners in need of loans to finance moves. Tellus delivers a cut of its loan revenue as interest to depositors, it says.
But the start-up has been funding riskier types of borrowers than it advertises, according to a Barron’s analysis of company communications and public records. Some of the loans have gone to real estate speculators, while others have gone to distressed borrowers.
“We’re seeing Silicon Valley trying to tell us they’re above regulation,” says Ed Mierzwinski, who directs the Federal Consumer Program at the Public Interest Research Group, a consumer finance, health, and safety watchdog. Tellus, he says, “is just one example.”
In 2018,
Robinhood Markets
(HOOD), which operates a free stock-trading app, announced a planned checking account with 3% yields. The plan never had regulatory approval, though, and was quickly shelved. Robinhood later applied for a banking charter that never came through.
Coinbase Global
(COIN) also shut down a savings-style account called Coinbase Lend in 2021 after receiving a notice from the Securities and Exchange Commission that the agency was considering a lawsuit over the service. Coinbase disclosed in March that it had received another such notice from the SEC in connection with other operations.
Other start-ups’ banklike operations have found ways to continue.
In February, a financial-technology company called Zera Financial was forced by the FDIC to remove claims on its website that customer funds are protected by the agency, but it continues to solicit uninsured deposits through apps that remain available on Apple’s App Store and on Google Play.
Tellus, though, has avoided the glare of regulators, even as it has gained plenty of attention from big Silicon Valley investors.
The Andreessen Horowitz logo is prominently featured in a banner atop Tellus’ home page. The graphic heralds the firm’s leadership of a $16 million funding round for Tellus last year.
Andreessen Horowitz, whose founder Marc Andreessen is famous for saying that “software is eating the world,” has backed onetime start-ups including
Meta Platforms
’ (META) Facebook,
Airbnb
(ABNB), and
Lyft
(LYFT), as well as Coinbase and Robinhood.
“The Tellus team is leveraging their unique insights around the interplay of real estate, savings, and lending to help consumers’ cash savings work harder for them,” said Andressen Horowitz general partner Jeff Jordan in a press release announcing the Tellus investment last November.
The size of Andreessen Horowitz’s cash position in Tellus isn’t massive by Silicon Valley venture-capital standards. The investment, though, is a key endorsement that allows Tellus to bask in the glow of the VC firm’s reputation for picking winners, says Dave Mawhinney, who directs the Swartz Center for Entrepreneurship at Carnegie Mellon University.
“It signals that Tellus is a serious business,” Mawhinney says.
An Andreessen Horowitz general partner, Connie Chan, is married to Tellus co-founder Rocky Lee, according to records filed in Santa Clara County, Calif.
An Andreessen Horowitz spokeswoman didn’t respond to questions about the firm’s investment in Tellus or a request to make Chan available for an interview. Chan and Lee didn’t respond to messages sent to them directly.
Tellus recruits young savers with videos on TikTok, Instagram, and Facebook featuring influencer-style spokespeople who tout the start-up’s interest rates. It has made some 70 real estate loans with those deposits, according to Attom data and public records.
“Tellus powers your money with residential real estate,” one young woman says in a video posted on TikTok, as well as on Instagram, where Tellus has nearly 18,000 followers. “If you’re saving for a house, wedding, or a car, check out Tellus.”
Tellus said in a recent blog post that it has thousands of customers. David Sament, who was looking for a place to park his remaining cash after losing thousands in last year’s crypto downturn, says he opened a Tellus account because “they pay a lot of interest.”
“That’s what attracted me to them,” he says.
After Silicon Valley Bank imploded, Sament says he got spooked by the banking turmoil and emptied his Tellus account. Tellus offered to double the interest on his Boost account for a week if he canceled the withdrawal. That offer, which Sament ignored, came in the same email in which Tellus purported to have partnerships with JPMorgan and Wells Fargo.
Unlike all of those banks, Tellus has virtually no physical presence. Its Silicon Valley headquarters is roughly the size of a one-car garage in a squat commercial building that it shares with tutoring and massage businesses.
On a recent weekday morning, the office looked dark through blinds that hung askew from a second-floor window; a reporter received no response after knocking on the office door.
Tellus was founded by Lee, a corporate attorney with offices in Beijing and Menlo Park, Calif., and Tiancheng Zhu, a Silicon Valley–based serial entrepreneur.
In its earliest incarnation, the company that would become Tellus was a smartphone app that landlords used to communicate with tenants, collect rent, and track expenses, according to archived versions of the company’s website.
Tellus’ nascent lending business emerged in 2019, when a new version of the property-management tool—“Tellus 2.0”—was introduced on Product Hunt, a website where software developers promote new apps and big software updates.
The new Tellus aimed to help connect landlords on its property-management app with investors willing to offer them cash-out loans.
A patent application later filed by Lee and Zhu showed how the app would confirm that backers of those mortgages were “accredited investors,” meaning they had the savings, income, or financial background to participate in nonpublic investments that others are barred from joining. Tellus declined to make Zhu available, and he didn’t respond to a message sent via social media.
Offerings available to accredited investors have less stringent disclosure requirements than ones available on public exchanges, but they still must be registered with the SEC.
When Tellus’ development team returned to Product Hunt in August 2020 with another reboot—“Tellus Boost”—the loans it aimed to provide landlords would no longer be funded by accredited investors.
Capital would instead come from depositors in savings accounts that paid as much as 3% interest, wrote product designer Blake Manzo in a post on the site. The average interest that conventional banks were offering on savings accounts at the time was 0.1%, according to Bankrate.
“Similar to a bank, we lend out funds secured by real estate mortgages and keep a portion of the interest as revenue,” wrote Manzo, who has since left the company.
Asked recently about those descriptions of Tellus, Manzo told Barron’s that the “product iterates rapidly and has changed a lot since the early days.”
In a recent shift away from landlords, Tellus says its financing now largely takes the form of bridge loans for home buyers.
These are “short-term loans to help people buy a new home while waiting to sell their current ones,” it said on Instagram in March.
When Tellus rebooted its product with deposit accounts in 2020, property values in the San Francisco Bay Area, where Tellus does the vast majority of its lending, were in the midst of a historic upswing. They had surged 19% from a year earlier, according to calculations based on data from the California Association of Realtors.
That dynamic has reversed. Bay Area home values dropped 19% in February 2023 from a year earlier, the California Association of Realtors data show, increasing the risk of losses to depositors if Tellus borrowers default.
Before its bridge-loan emphasis, Tellus had said it managed risk by lending only to landlords that used its property-management app, which allowed the start-up to monitor their finances. The bridge loans it now makes to home buyers, the company says, are safe because of their shorter terms, which gives borrowers less time to default.
But a review of property sales listings and city permit records shows 12 examples of Tellus loans backed by redevelopment sites or buildings requiring heavy rehabilitation. Such speculative projects typically carry a high degree of risk.
One of these is a complex of decaying houses along a boulevard of auto businesses and strip malls near downtown San Jose. The buildings have no rent-paying tenants, according to their owner, Stephanie Yi, who is seeking city permits to redevelop the blighted property into a 120-unit apartment building.
Another Yi venture—backed by a Tellus loan—bought a partially constructed two-story home in central San Jose after its previous owner was cited for developing the site without proper permits and forced to stop work, Yi says. It remains a half-built shell, with exposed plywood sheathing and a refuse-filled yard, as Yi seeks clearance from city officials to resume the project.
About a third of the money that Tellus has lent over the past two years has gone to businesses managed by Yi and other officers of her San Jose—based real estate business, AlphaX RE Capital.
One of those officers, a broker named Sunnie Li who serves as AlphaX’s sales chief, also describes herself on her LinkedIn profile as a business consultant for Tellus. Tellus lists Li’s California Department of Real Estate license number next to the copyright text on its website.
Li didn’t respond to emailed questions about her relationship with Tellus.
Yi acknowledged that several of her real estate ventures’ loans from Tellus had been brokered by Li, but said any potential conflicts arising from this were Tellus’ concern, not hers.
Yi says Tellus distinguishes itself from other lenders by delivering loans on very short notice—from three to five days—and by always having money available to lend.
“They just tell us, when you have a deal, we have money for you,” she says. “They never say they are out of money.”
Other Tellus loans involve borrowers in financial distress.
Among them are sisters in West Oakland who got a loan from Tellus to refinance their existing mortgage in early summer 2021, but later encountered financial troubles due to Covid-19, according to a lawsuit they later filed against Tellus and others involved in the loan.
Their request for forbearance on the loan was ignored, and the home was sold as a foreclosure about six months later, according to the suit, which alleges they had not been given adequate notice of the foreclosure sale and other claims.
Sometime between the sisters’ plea for forbearance and the foreclosure, Tellus sold their loan to a group of investors, court records show. Tellus said in a court filing that it should be removed from the lawsuit since it no longer owned the loan.
On its website, Tellus says that it has never had a loss on any lending activity.
Experts say Tellus could be subject to securities regulation, since it isn’t a bank but is still offering its customers a financial return, potentially prompting requirements that it register with the SEC.
Ann Lipton, a professor of business law and entrepreneurship at Tulane University, says the SEC has varying guidelines based on past court decisions that it applies to determine whether to pursue businesses for issuing unlicensed securities.
The rules generally involve situations where people are widely offered an opportunity to invest in an enterprise through which they expect to financially benefit from the efforts of others, she says.
Tellus “certainly sounds like the kinds of things that have been deemed securities in the past,” she says.
The SEC cracked down on Coinbase for using market-beating interest rates to draw customers to its savings accounts, then investing that cash in digital coins, notes Santa Clara University finance professor Seoyoung Kim, who teaches a course on fintechs.
Tellus’ model doesn’t sound all that different, she says.
After the SEC action, Coinbase argued that its Coinbase Lend program didn’t qualify as a security by its interpretation.
Tellus was the subject of a May 2021 whistleblower complaint to the SEC alleging that the company was illegally peddling an unlicensed security, among other claims.
The complaint was shared with Barron’s by its author, Barry Minkow, who was three times convicted of financial fraud and now considers himself a whistleblower. Minkow says he gathered material from the company for his complaint by pretending to be a prospective depositor.
The SEC declined to comment.
Tellus could also face pushback from state bank regulators, since it offers services that under the law can be provided only by banks, says Paul Clark, a specialist in financial regulation at the law firm Seward & Kissel. “If they’re saying, ‘I will take your money, and I will pay you interest on it,’ that’s a deposit,” Clark says. “Deposit-taking is the immediate triggering event in every state in this country for whether you need a banking license.”
In California, that determination would come from the Department of Financial Protection and Innovation. Mark Leyes, a spokesman for the regulator, declined to comment specifically on Tellus, and wouldn’t confirm or deny the existence of an investigation.
Leyes said a business that offers deposit accounts where cash can be withdrawn at will, as Tellus does, “would probably trigger licensing requirements as either a state or federally chartered bank. But each circumstance would be considered and evaluated separately.”
In 2020, a Tellus marketing team member wrote on the Product Hunt website that the firm was proud not to offer an “FDIC account like every other competitor on the market.”
“The government has put in limitations on what those funds can be used for,” wrote the Tellus employee. “Instead of insuring our funds through FDIC, we secure them with real estate mortgages, allowing us to pay you a much higher rate than the banks.”
Write to Jacob Adelman at [email protected]
Corrections & Amplifications: David Sament told Barron’s that he opened a Tellus account because “they pay a lot of interest.” An earlier version of this article incorrectly referred to him as David Samet.
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