Wherein, I decide to take up the pitchfork after being a victim of financial fraud:
In a letter sent yesterday to its customers, Canopy said that it has reason to believe that former executives were skimming from the Health Savings Accounts that Canopy’s technology is designed to help administer. In other words, they were stealing from ordinary folks employed by companies like Fifth Third Bank and Sovereign Bank (Canopy also claimed many clients outside the financial services space, but we’ve been unable to confirm their validity).
I’m one of those outside the financial services space. In the letter, Canopy Financial indicated that they had commenced a chapter 11 bankruptcy filing. Even better, the SEC is suing Canopy and its former president:
Yesterday, peHUB reported that Canopy had sent a letter to its customers saying it had reason to believe that its former executives were skimming money from the accounts. Canopy has not yet responded to our report. The company’s former president, Jeremy Blackburn, was indicted for wire fraud last week in Chicago federal court. Separately, Blackburn and Canopy were sued by the SEC.
Indicted for investment fraud:
Canopy raised approximately $75 million from investors and paid approximately $40 million in redemptions to existing investors, including Blackburn, who redeemed 250,000 shares in exchange for approximately $1.625 million. Blackburn also misappropriated at least $1.7 million from the offering into his personal bank accounts.
What’s strange about this is that FDIC insurance rules concerning HSAs should be operative here, as the FDIC designates HSA’s as revocable trusts, subject to the $100,000 insured limit. So you’d think that Canopy Financial is just another bank failure, and subject to FDIC takeover and payout. Instead, Canopy Financial’s filing automatically designates HSA account holders as “creditors”, unable to even contact Canopy, since that constitutes harassment under the bankruptcy code.
Let’s ponder a moment those who might have a medical emergency in the near future and need to get access to funds in HSA. They’re just out of luck.
HSA’s were once touted as the market oriented solution to putting the consumer in charge of health care decisions. You see, in libertarian-land, the consumer would have more skin in the game since it was their pre-tax dollars combined with a high deductible insurance policy, and would thus magically drive down prices. And since the individual insurance market is broken anyway, why not get some tax benefit being self-employed?
Instead, what we’re left with is the CEO class absconding with the funds, both from investors and HSA account holders. In Canopy’s letter to me they “deeply regret this development”. Well, they’re going to deeply regret messing with the thousands of HSA account holders after all is said and done. Eventually, Canopy Financial’s insurance will have to foot the bill, but that’s probably months away. In the meantime, it’s time to raise a ruckus, with a class action lawsuit.
This is all part of the continuum that has landlords not disclosing that their building is about to be condemned, or the Native Americans in the Dakotas subject to utility disconnects in the winter, even though state law supposedly restricts that practice. Once the middle-class figures out that the scams that typically target the poor are targeting them, then the jig is up. As the peHUB article notes:
Gillen said Canopy’s problems have made people anxious about using Health Savings Accounts. “The industry has gotten a bit of a black eye from this thing already,” he said. “If (the skimming) is true, this is a body blow. It will really scare people. The assumption has been that your money is safe. Before, Canopy was accused of taking investors’ money, but now it’s John and Jane Doe.”
