Compound Banc pays an eye-popping 7% on deposits — or at least things that look and feel a lot like deposits. But it's not a bank, and the deposits — technically, they're risky bonds — are not insured by the FDIC or anybody else.
, a way for small companies to issue bonds without incurring the expense and scrutiny associated with a full public securities offering.Compound doesn't intend to stop at $75 million. Kaur, the investor, tells Axios that as soon as Compound has issued its first $75 million in bonds, it will spin up a second $75 million issue, and so on. Eventually, he says, after two or three offerings, it might be more economical to do a public S-1 offering, since those aren't capped in size.
Even those customers who regularly check SEC filings will only find infrequent and out-of-date updates on how much Compound has in assets or how those assets are performing.who are best placed to scrutinize Compound Banc are the FDIC and the CFPB, both of whom declined to comment to Axios. For the time being, however, only the SEC has theBoth the FDIC and the CFPB have the authority to issue a temporary cease-and-desist order, says McCoy: "They could shut it down very quickly.
Here's how that could happen: Compound Banc's liabilities continually grow at a rate of 7%, while its assets are tied up in volatile mortgage products. Customers have only infrequent glances into how much those mortgage products might be worth — much like FTX customers didn't have visibility into the asset side of FTX's balance sheet.
The homepage does, however, lead with the yield on the bonds, expressed as an "APY." That's a regulated legal term under the federal Truth in Savings Act, which means theforces regulated banks to show their APYs on an apples-to-apples basis. Using that term therefore "buttresses the impression that this is a regulated bank savings product," according to McCoy.
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