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The books of the failed fintech middleman Synapse show that, according to one of the lenders involved, almost all deposits from customers of the banking app Yotta disappeared weeks ago.
A network of eight banks held $109 million in deposits from Yotta customers as of April 11, Evolve Bank & Trust said in a bankruptcy court letter filed late Thursday.
About a month later, the ledger showed just $1.4 million in Yotta funds held at one of the banks, Evolve said. It added that neither customers nor Evolve received any funds during this period.
“These irregularities in Synapse’s accounting of Yotta end-user funds are just one example of the many discrepancies Evolve has observed,” the bank said. “A detailed investigation needs to be carried out into what happened to these funds or, alternatively, why the ledger provided by Synapse reflects movements of funds that did not actually take place.”
Evolve, one of the key players in a worsening situation that has seen more than 100,000 fintech customers locked out of their bank accounts since May 11, has been trying to work with other banks to create a breakdown of who is owed what becomes. Its former partner Synapse, which connected customer-facing fintech apps with FDIC-backed banks, filed for bankruptcy in April amid disputes over customer balances.
But Evolve itself was reprimanded by the Federal Reserve last week for failing to properly manage its fintech partnerships. The regulator found that Evolve “engaged in unsafe and unsound banking practices” and forced the bank to improve oversight of its fintech program. The Fed said the enforcement action was separate from the Synapse bankruptcy.
Evolve has been trying to separate from Synapse since late 2022 because it discovered problems with the general ledger, a spokesman for the Memphis, Tennessee-based bank said, declining to comment further.
Yotta declined to comment.
Unclear schedule
Despite increasing pressure on the banks involved to unfreeze all frozen accounts, messy records and a lack of funding to fund an external forensic analysis have led to uncertainty about when this will happen.
Evolve claims that due to mismatches in the ledgers, it is reluctant to allow payments to many customers until a full reconciliation of the mismatched ledgers is completed, particularly related to a group of banks used in the Synapse brokerage program.
Synapse transferred the majority of fintech customer funds held by Evolve to a group of banks affiliated with its brokerage program in late 2023, Evolve said in court filings.
Last week, the court-appointed trustee, former FDIC Chair Jelena McWilliams, noted that a “full, last-dollar reconciliation to the Synapse ledger” may not be possible.
Even the total shortfall in funds owed to all affected depositors is not known. Earlier this month, McWilliams put the amount at $85 million; However, later reports stated that it was between $65 million and $96 million.
The disruption for thousands of fintech customers has now extended into its sixth week. Many Yotta customers contacted by CNBC said they used the service as their primary checking account and that their lives were upended by the situation.
In a letter sent Thursday, McWilliams called on five U.S. regulators to become more involved in Synapse’s collapse, calling for resources to help affected customers understand where their funds are being held and to improve communications with banks facilitate.
“The impact of Synapse’s bankruptcy on end users has been devastating,” McWilliams wrote to regulators. “Many end consumers are unable to pay for their living expenses and food. I appreciate your prompt response to this request and respectfully ask your authorities to respond as quickly as possible.”
McWilliams is scheduled to present her latest bankruptcy status report during a hearing on Friday at 1 p.m. ET.
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2024-06-21 15:23:51
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