Draft:Tellus (app)

Tellus App, Inc.  (d.b.a. Tellus, previously known as Zilly, Inc.) is an American real estate technology and financial technology company. The company's primary product, an eponymous app, provides a property management and payment system for use in housing rentals, and offers non-FDIC-insured cash accounts targeted at general consumers.

Tellus was founded in 2016 by cofounders Rocky Lee and Tiancheng Zhu, who previously had worked as a corporate lawyer and a businessman respectively. Prior to the firm's creation, Lee had business connections in both China and the United States, while Zhu had mostly worked in Silicon Valley.

The company's business model has drawn scrutiny from the United States Senate Committee on Banking, Housing, and Urban Affairs, whose chair, Sherrod Brown, wrote letters to Tellus and to the FDIC that expressed concerns about the business's operations.

Early corporate history and property management business line
Tellus was founded in 2016 by cofounders Rocky Lee and Tiancheng Zhu, who previously had worked as a corporate lawyer and a businessman respectively. Prior to the firm's creation, Lee had business connections in both China and the United States, while Zhu had mostly worked in Silicon Valley. The company's first line of business was as a property management mobile application that provided a way for landlords to manage rent payments and expenses, as well as conduct secure messaging with tenants. The app also allows for property managers to screen rent applicants and comes with in-app customer support. In 2020, the company added Jim Yu, who had earned a Master of Business Administration from the Stanford Graduate School of Business.

In 2021, CyberNews reported that it had discovered an Amazon S3 bucket belonging to Tellus containing "user records, chat logs, and transaction records" dated between 2018 and January 2020 had been publicly exposed. The exposed bucket held 6,729 files containing user records, chat logs, and transaction details, including personal information such as customer names, emails, user IDs, customer addresses, court dates, phone numbers, scans of tenant-submitted documents, and other sensitive images. As of May 2021, Tellus had secured the bucket, but CyberNews was unable to determine if or how many malefactors accessed the data during the exposure period.

Expansion into consumer financial services and mortgage lending
In 2019, Tellus expanded from a property management app by opening a lending business arm. The arm, branded as "Tellus 2.0". The lending arm, per a patent application and Barron's, initially used money from accredited investors to fund cash out refinances.

In 2020, the firm pivoted and released "Tellus Boost", a product where funding for mortgage lending was drawn from customer deposits held in a cash account, in exchange for which depositors would receive interest payments. Tellus's revenue on its Tellus Boost product comes from the difference between the lower interest rate payed by Tellus to depositors than the interest rate paid by loan recipients to Tellus. Lee told TechCrunch in 2022 that loan recipients from Tellus frequently had sought super jumbo mortgages, and that its average loan size was $2 million. By April 2023, the company had expanded its offerings made using funds from consumer depository accounts to include real estate bridge loans. Tellus has stated that these loans made using customer deposits represent a small portion of their total business.

In Q4 2022, the company announced it had raised a seed round of approximately $16 million from a group of investors led by Andreessen Horowitz, in addition to an additional $10 million that had been raised via a simple agreement for future equity with other investors. At the time of the round, the company had been seeking to increase headcount, which had numbered around 50 employees as of November 2022.

The majority of the firm's lending takes place in the San Francisco Bay area; between April and December 2024, 68% of funds lent went to affiliates of AlphaX RE Capital for their investments in Silicon Valley properties. In the preceding two years, approximately $33 million of the firm's $100 million in loans had gone to affiliates of that firm, which is based in San Jose, California.

Banking
While Tellus possesses a California state lending license, which allows it to issue loans in the state of California, Tellus does not posses a banking license and customer deposits are not FDIC-insured. Tellus characterizes itself as a financial technology company, publicly states on its website that it is not a bank, and is not regulated as if it were a bank. Nevertheless, Tellus's consumer-facing accounts function by taking deposits and providing an account balance from which customers can withdraw at any time, while representing that the account balance is a debt payable to its corresponding account holder. Todd Phillips and Matthew Adam Bruckner refer to Tellus as an "imitation bank", characterizing it as being among "retail-facing institutions that take customer deposits while evading the banking and consumer protection laws that protect customers and the financial system".

In Tellus's marketing materials, the company has often compared and contrasted itself against banks, or otherwise touted relationships with banks. According to Barron's, several of these marketing materials have included false or misleading information regarding its financial products and its relationships with established banks.

Tellus said in 2023 that it makes low-risk mortgages using customer funds that return high rates of interest. But several of the loans issued by Tellus have been issued to higher risk of default, including to clients whose real estate investment objectives were speculation and clients under financial distress. And between April and December 2023, 2 mortgages issued by Tellus defaulted; Tellus alleged in court filings that the two properties owed over $6 million to Tellus.

Several public claims Tellus has made about its relationship with established banks have been false. Just prior to the collapse of Silicon Valley Bank in March 2023, Tellus had touted Silicon Valley Bank (SVB) as a custodian for user deposits. But after SVB collapsed, Tellus publicly stated that the firm did not have any funds with SVB, and lacked exposure to it. Instead, Tellus wrote, it had banking partnerships with JPMorgan Chase and Wells Fargo. But when Barron's asked JPMorgan Chase and Wells Fargo if they had a banking partnership with Tellus, both banks told Barron's that they did not; shortly thereafter, Tellus removed reference to each of the banks.

Securities
Tellus characterizes its consumer services as packaging together cash from multiple investors to make real estate loans; per Tellus, when an in investor's cash is used in one of these loans, cash is deemed "deployed" in a particular loan; Tellus states that this is not a mortgage-backed security. Debt payable by Tellus to account holders is also not a registered security, and disclosures for this debt product that would be required of registered securities are thus not published. Instead, consumers seeking to evaluate the risk of the debt product must rely on risk descriptions published by Tellus on its own website, and also on public reporting. Ann M. Lipton, a business law professor at Tulane University, told Barron's in April 2023 that Tellus's consumer debt products appeared to be "like the kinds of things that have been deemed securities in the past". Separately, a 2021 SEC whistleblower complaint alleging that Tellus was selling an unlicensed security was filed by Barry Minkow, a thrice-convicted fraudster.

Regulatory and senatorial scrutiny
Phillips and Bruckner argue that the Consumer Financial Protection Bureau has jurisdiction over Tellus, arguing that the firm has engaged in deposit-taking as defined in the Consumer Financial Protection Act.