Solid Faked Revenue Numbers, Special Committee Appointed To Investigate, Sources Reveal
Solid & Evolve Client EZBanc, Embroiled in $9m Lawsuit, Linked To Convicted Russian Money Launderer, Filings Show
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Solid Faked Revenue Numbers, Special Committee Appointed To Investigate, Sources Reveal
Solid, Evolve and Their Client EZBanc Accused Of Fraud, Negligence, Breach of Fiduciary Duty In $9 Million Civil Suit; EZBanc Has Links To Convicted Russian Money Launderer
Solid recorded un-billed and un-contracted for revenue, as well as invoicing and recording revenue from customers that were not actually using its services or lacked the ability or intention to pay; the company also overstated transaction revenue by sharing “gross interchange” numbers, without properly accounting for high rates of reversals and refunds and by misstating reserves, sources indicated
Solid’s board of directors has appointed a special committee, consisting of Mathias Schilling, from Solid investor Headline, to investigate the claims as FTV considers further legal action to recoup its investment
Solid, its client EZBanc, and bank partner Evolve Bank & Trust are being sued for over $9 million by two companies that allege fraud, negligence, and breach of fiduciary duty
EZBanc, the company at the center of the $9 million suit, is run by “Gregory Donahue,” aka Gregory Mancuso — who securities industry regulator Finra permanently banned from the industry, and who has links to convicted Russian money launderer and one-time federal informant Mikhail Syroejine
After an extremely frothy fundraising environment for fintech in 2020 and 2021, activity in 2022 started to slow dramatically.
Against that backdrop, banking-as-a-service platform Solid’s $63 million Series B, announced in August 2022, should have been a huge win.
But, behind the scenes, not everything was as it seemed.
While Solid’s lax due diligence and oversight of clients on its platform has been known for awhile, the problems at the company run far deeper.
According to numerous people with knowledge of the matter, granted anonymity given the sensitive nature of the information, and internal documents reviewed by Fintech Business Weekly, Solid appears to have engaged in a scheme to artificially inflate booked revenue in order to present a favorable impression to existing and potential investors — including in data used in its Series B fundraise.
In order to boost recorded revenue and ARR projections, Solid took a very aggressive approach to signing new clients: despite a small sales organization, the company would sign numerous new clients each month — despite having less favorable pricing than some competitors.
The key to signing clients at such a rapid clip? Minimal due diligence and, often, making unrealistic promises — one source described Solid’s diligence level as “zero, or less than zero.” Multiple people described an environment of doing or saying anything in order to sign clients in order to show growing customer and transaction volumes to investors.
Solid would tell potential customers they could sign, pay nothing up front, and be invoiced in 30 days, with another 30 days to pay. In many cases, Solid was not even collecting payment information upfront or verifying clients’ ability to pay.
Solid also had a habit of telling prospective customers they could get a program live in as little as two to four weeks, even though Evolve, Solid’s longest-running bank partner, could take six weeks or longer to review new programs. Many of the clients Solid signed had some type of crypto component to their products, driving significantly more (and slower) scrutiny from Evolve.
The company also had a habit of promising capabilities to customers that didn’t actually exist — things like international payments, remote deposit capture, and cash deposit through retail point of sale.
Between longer due diligence reviews with Evolve and missing features, numerous “clients” that signed with Solid — and were invoiced — never even began implementation or made any payment to the company. That didn’t stop Solid from recording revenues and claiming ARR associated with these clients.
Other clients may not have even had the ability to pay Solid. Because Solid did “less than zero” diligence on potential clients, some startups would sign with Solid in order to demonstrate to potential investors that they had lined up a banking partner — only to never successfully raise funding and thus not end up building anything on Solid or paying the company.
A review of sites that carry language that indicates they are or were Solid customers reveals an array of higher risk, dubious, or non-functional programs:
Chariot Payments, which the site describes as “secure banking and regulatory compliant Distributed Ledger Technology [that] enables the future data and identity security of Web 3.0,” but consists of little more than a landing page
Loop, a Canadian multi-currency business bank account
Modak, a bank account for teens
Nexus, which claims to offer a bank account with “market” returns as high as 9.51% annually
Struxtion, a proptech/construction management platform; it is unclear if the services is actually live in production
TranxPay, a cross-border and multi-currency account, which doesn’t appear to be live
Ratio, which claims to offer fiat to crypto transactions globally
Nibble Health, an employer-distributed BNPL for healthcare expenses
Lumanu, a platform for sourcing, managing, and paying creative talent
Palolo, an employer-distributed financial wellness app
Nuestro, which purports to offer banking, loans, and financial literacy targeting Spanish language users, though it does not appear to be live
Starlight, a “financial OS” for Web3 teams, including “unified crypto & fiat treasury”
Zilbank (also known as Zilmoney and OnlineCheckWriter), which claims to have more than 1 million users and have processed more than $50 billion in transactions; the companies also claim to offer US bank accounts to Bahraini individuals and businesses
BuffPay, a prepaid debit card for gamers, which has shut down
ReentryCenters.com, which claims to offer banking service for ex-convicts under the name ReentryPay, though the service doesn’t seem to be live
Accrew, a “member-owned banking app,” which is not live
American eWallet, which claims to offer “[s]mart banking for coaches, clubs, event organizers, players, parents and businesses,” but is not actually live
Multikrd, an employer-distributed financial health and EWA app
Piñata Pay, which offers rewards and credit reporting on rent payments
Onward, an app for managing expenses and spending, including child support, for co-parents (Onward no longer works with Solid.)
ChainMentor, which offers some kind of token/crypto reward for learning about AI and states it is currently in beta
Prosperiti, seemingly a neobank for Baptists and Seventh Day Adventists, which is not live
PlateIQ, which offers “end-to-end AP automation software” and is a fellow FTV portfolio company
and TranzactCard, which is essentially a multi-level marketing scheme that offers users the chance to pay $495 + a monthly fee of $50 and a 10% service fee to operate their own “digital branch office.” In return, users collect a cut of all of the transactions made in their “community,” including in “sponsored” branches (or their “downline” in MLM parlance) —
Many of the sites don’t actually disclose the underlying bank partner, saying only that “Banking services are provided by Solid Financial Technologies, Inc.’s partner banks who are Member FDIC.”
Solid’s habit of recording un-billed (or even un-contracted for) revenue, recording of revenue from customers who weren’t actually using the company’s services, and customers who lacked the ability or intention to pay isn’t the only problem.
The company also is alleged to have significantly overstated transaction-based revenue from its programs — one of the largest of which is Dogecard — by not properly accounting for declined transactions, reversals, refunds, and fraud.
Despite red flags about Dogecard, including high rates of declined and refunded transactions as a share of total volume and repeated transaction attempts at merchants with no website or physical location, the Solid team refused to shut down the program, as it was one of the company’s highest volume card programs.
Operating on the premise that potential investors care primarily about revenue growth and not cash burn or operating income, Solid was seemingly willing to do anything to show rising revenue and ARR numbers and quietly write off unpaid customer invoices later.
Solid’s Board Has Appointed A Special Committee To Investigate
Now, after months of the company stonewalling investors’ requests, the board — which includes Solid investors Rexhep Dollaku from Base10 and Robert Anderson from FTV — has approved the creation of one-person special committee, consisting of Mathias Schilling, managing partner at Solid Series A lead Headline.
The special committee has retained independent counsel from Goodwin Procter, and Headline’s Schilling has been authorized to act independently of Solid’s executive management.
The relationship between FTV, which contributed $61 million of Solid’s $63 million Series B round (during which Solid co-founder and CEO Arjun Thyagarajan cashed out a significant amount through a secondary share sale), and the company has deteriorated to the point where the parties are only communicating through legal counsel as the matter is investigated and FTV evaluates taking more aggressive legal action to recoup its investment.
Solid, Evolve and Their Client EZBanc Accused Of Fraud, Negligence, Breach of Fiduciary Duty In $9 Million Civil Suit
Solid’s dispute with its investors isn’t the company’s only legal problem at the moment.
In May of this year, two affiliated companies, BSI Group LLC and International Business Solutions Group LLC, filed a civil suit against EZBanc Corp., Solid Financial Technologies, and Evolve Bank & Trust.
BSI provides accounts payable and payroll disbursements, while IBS offers cross-border payments, foreign exchange, and global treasury management.
BSI and IBS’ lawsuit seeks to recover over $9 million in funds that the plaintiffs allege were fraudulently transferred or withheld without their permission.
The allegations detailed in BSI and IBS’ complaint, taken at face value, illustrate potentially catastrophic gaps in Evolve Bank & Trust’s and Solid’s due diligence, third-party risk management, and compliance practices.
According to the complaint, in 2022, BSI sought to open a bank account through EZBanc Corp. While BSI knew this account was held at Evolve Bank & Trust, it didn’t know that EZBanc opened and managed the account through an intermediary — Solid.
The number of parties and their unclear relationships to one another present obvious risks and challenges — how could Evolve be doing adequate due diligence and monitoring of BSI’s end customers, with Solid and EZBanc as intermediaries?
But managing the fifth? sixth? party risk presented by BSI and IBS’ end clients may actually be the least problematic part of the relationship.
EZBanc’s Sole Officer and Director Changed His Name After Securities Industry Ban
BSI’s contact and the only listed director or officer of EZBanc Corp. was Gregory Donahue — though, he was known as Gregory Mancuso until 2022, when he filed paperwork in a district court in Austin, Texas, to change his name.
Mancuso may have changed his name to try to distance himself from previous legal problems — in 2015, he separated from employment at BBVA after allegations he didn’t follow proper account opening procedures; and, in 2020, securities industry regulator Finra permanently banned Mancuso from the industry for lying in on-the-record testimony he gave to Finra in response to a complaint.
The 2020 disbarment stems from a complaint from a relative of two clients, who suggested that Mancuso “might have caused the dementia-ridden customer to sell their annuity and to transfer proceeds into a Swiss asset management company with which Mancuso was affiliated.”
The decision to permanently ban Mancuso from the securities industry was reached on a default basis, as Mancuso didn’t bother to show up to the hearing on the matter.
EZBanc and Mancuso’s Links to A Medvedev Classmate and Convicted Russian Money Launderer
Another link Mancuso may have been seeking to get away from by changing his name? An affiliation with convicted Russian money launderer and one-time federal informant Mikhail Syroejine — a classmate of former Russian President Dmitri Medvedev — who uses numerous aliases, including “Michael Guss.”
Guss — going by Syroejine when he immigrated to the US in the 1990s — has a long history of fraud and money laundering.
Around 1993, he undertook a scheme to embezzle around $2 million (worth about $4.25 million today) from a Russian TV station through US and foreign shell companies and banks, including Citibank, Bank of New York (now BNY Mellon), Chase, and Chemical (now part of Chase.) He pleaded guilty to felony charges related to the scheme in 1996 and subsequently cooperated with federal prosecutors by testifying against Russian organized crime groups in New York.
Later, in the mid-2000s, although never a registered individual in the securities industry, Guss effectively took control of an Austin, Texas-based brokerage and used it to defraud retail customers by charging them excessive markups on trades and failing to disclose those markups.
Due to his previous felony conviction, Guss was ineligible to be associated with a securities dealer for a period of ten years. The firm and Guss were ultimately censured, fined, and required to pay restitution. Both Guss and the firm were also barred from further work in the securities industry.
Guss also has more recent links to Transactive Systems, a UK- and Lithuanian-licensed e-money institution that processed payments for high-risk businesses, including forex, contracts-for-difference, and crypto firms like Nexo and Crypto.com.
Also a Transactive client? Migom Bank, a Dominica-based institution focused on crypto lending. Guss was a major shareholder in the firm and orchestrated the bank’s relationship with Transactive.
The Lithuanian central bank effectively shut down Transactive’s activity in the country earlier this year, citing “significant violations and shortcomings” of AML laws.
Guss, in turn, is linked to EZBanc and Mancuso courtesy of another court case alleging fraud.
The lengthy, 195-page complaint, filed by two Costa Rican entities in early 2019, alleges a sprawling conspiracy involving Guss, Mancuso, a Florida-based entity named EZBanc Corp., and numerous others.
The filing re-instating the EZBanc entity in 2018, after it had failed to file annual reports for some seven years, was signed by Gregory Mancuso and lists Michael Guss as President:
The convoluted case involves penny stocks Gopher Protocol and Mobiquity Technologies, a fake Swiss wealth management and brokerage called Rainier AG (which appears to be the same “Swiss” firm in the incident that resulted in Mancuso’s securities industry ban), and Embles Financial Inc. — a firm that doesn’t actually exist, except as a “doing business as” alias for Guss, the convicted Russian money launderer.
The Costa Rican companies, which were seeking damages in excess of $3.5 million, and the defendants agreed to mediation, and the case was ultimately dismissed when the parties reached an agreement to settle.
What Happened to BSI & IBS’s $9 Million?
In addition to leveraging Solid to set up accounts for BSI and IBS at Evolve, EZBanc — the one incorporated in Bozeman, Montana, that lists “Gregory Donahue” as its sole director and officer — also opened an account for itself, BSI and IBS’ complaint alleges.
BSI’s account at Evolve was opened in June 2022; its affiliated company IBS also opened an account in early December 2022.
But in mid-December, problems emerged: the companies had trouble processing transactions, despite apparently adequate balances in their accounts.
According to the complaint, in an effort to resolve the issues, the companies reached out directly to Evolve Bank & Trust — specifically, to Evolve’s Chairman, Scot Lenoir, and its president of open banking, Hank Word.
It was only at this point that the companies became aware of Solid, which Evolve referred to as their “account manager.” BSI and IBS allege that the service and portal provided by EZBanc Corp were a white-labeled version of Solid’s platform.
With the issues unresolved, BSI and IBS instructed Evolve not to process any transfers without confirmation directly from authorized individuals at BSI or IBS.
But between December 27th and 29th — when EZBanc’s banking portal was down due to a “bug” — three unauthorized transfers totaling about $7 million were made from BSI and IBS accounts to EZBanc’s account at Evolve.
The transfers were purportedly authorized by IBS’ COO, Javier Goicochea, with the descriptions indicating they were payments related to an invoice factoring transaction.
But, per the companies’ complaint, Mr. Goicochea did not authorize the transfers, nor did either company ever have an invoice factoring loan with EZBanc or any other company.
A fourth unauthorized transfer, for $350,000, was made on January 13, 2023 — but neither this transaction, nor the previous three, appeared when BSI and IBS representatives logged in to EZBanc’s online portal.
It wasn’t until February 8, 2023, when Evolve responded to the companies’ request to close their accounts and send funds to another bank, that BSI and IBS became aware of the four unauthorized transactions moving a total of $7.35 million to EZBanc’s account.
Ultimately, Solid and Evolve did close the accounts — but, instead of sending the remaining approximately $1.4 million to the companies’ account at another bank, Solid and Evolve sent the funds to the trust account for EZBanc’s lawyer, William Samoska. Samoska also represented Gregory Mancuso aka Gregory Donahue in the Costa Rican fraud case.
As of the case’s filing in May, none of BSI and IBS’ funds had been returned. The companies are seeking a total of just over $9 million from EZBanc, Solid, and Evolve Bank & Trust.
Since the case’s initial filing, EZBanc attempted to force the matter into arbitration, with BSI and IBS responding that they had never received nor agreed to the terms and conditions containing the arbitration provision that EZBanc claimed it had.
Subsequently, Solid and Evolve have moved to dismiss the case, not on the merits, but rather by arguing it was filed in the wrong venue.
The case remains open and unresolved as of the time of publication.
What’s Next For Solid?
It has been a slow but progressive unraveling for Solid.
Things came to a head with Evolve late last year, around the time of the ZELF debacle, when it came to light that Solid permitted clients to operate in a “penny test” environment — a live production environment where only very small transactions are allowed — only without restricting the clients’ permitted transaction size.
Functionally, that meant Solid clients were operating live in production, without Evolve’s knowledge or approval.
Now, facing an investor investigation and possible lawsuit, a $9 million civil case, and with its relationship with Evolve finally winding down at the end of the month, the walls seem to be closing in on Solid.
Solid does have two remaining bank partners — $100 million asset CBW Bank, which is operating under an FDIC consent order reached in 2020 for BSA violations, and its just-announced partnership with $364 million asset Lewis & Clark Bank of Oregon City, Oregon.
The agreement with Lewis & Clark, signed about three months ago, allows Solid to offer only a limited set of banking capabilities vs. what Solid has promised clients. It also has more thorough diligence requirements and longer onboarding timelines.
Sources indicated that, despite the more limited agreement, Solid pushed to go public with the partnership news, as the company was rapidly losing clients as its Evolve relationship was approaching its end.
To date, Lewis & Clark has only agreed to onboard a single Solid customer.
For its part, CBW’s 2020 consent order required it to cease all activity pertaining to foreign financial institution customers, including funds transfers, remote deposit capture, dollar repatriation, MSB remittances, ACH transfers, and all activity related to domestic MSBs, among other conditions.
FDIC guidance to all institutions it supervises, including CBW, also requires that they notify the FDIC if they engage in or intend to engage in activities involving crypto assets.
Yet, based on disclosures on their sites, CBW was, is, or may be affiliated with the following Solid programs:
Chariot Payments, a distributed ledger and Web3 payments company
TranzactCard, the pyramid-scheme-like neobank offering users the chance to start their own “digital branch community”
Onward, the co-parenting child expense app
American eWallet, a neobank that doesn’t appear to have launched, yet claims to have over 10,000 “happy customers”
Given the numerous challenges facing Solid, its demonstrated history of compliance failures, and the higher-risk nature and dubious quality of most all Solid clients, time may be running out for the troubled banking-as-a-service platform.
Representatives for Solid, FTV, Headline, CBW Bank, and Lewis & Clark Bank didn’t respond to requests for comment by the time of publication.
Representatives for Evolve Bank & Trust and BSI & IBS declined to comment for this story.
Updated 9/21/2023 to clarify Onward no longer works with Solid.
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