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The ledgers of failed fintech broker Synapse show that almost all deposits held for customers of the Yotta banking app have been missing for weeks, according to one of the lenders involved.
A network of eight banks held $109 million in deposits for Yotta clients 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 of Yotta's money sitting in a bank, Evolve said. She added that neither customers nor Evolve received money in that time period.
“These irregularities in Synapse’s record of Yotta’s end-user funds are just one example of the many discrepancies noted by Evolve,” the bank said. “A detailed investigation should be conducted into what happened to these funds, or alternatively, why the ledger provided by Synapse reflects a movement of funds that did not actually occur.”
Evolve, one of the main players in the worsening impasse that has left more than 100,000 fintech customers locked out of their bank accounts since May 11, is trying with other banks to put together a record of who is entitled to what. Its former partner Synapse, which connected customer-facing fintech applications to 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 noted that Evolve “engaged in unsafe and unsound banking practices” and forced the bank to improve oversight of its fintech software. The Fed said the executive action was separate from Synapse's bankruptcy.
Adam Moelis, Yotta's CEO and co-founder, said in response to this article that Synapse said in court filings that Evolve kept nearly all of Yotta's customers' deposits. Evolve and Synapse disagree over who holds the funds and who is responsible for the frozen accounts.
“According to Synapse’s trial balance report filed on May 17, there is $112 million of client funds held at Evolve,” Moelis said.
Evolve, which is headquartered in Memphis, Tennessee, issued this statement late Friday:
“We believe a careful forensic investigation will reveal that these alleged funds are not in the possession of Evolve, nor were they, contrary to Synapse's claims,” a company spokesperson told CNBC. “Evolve will continue to cooperate with the custodian and other banks to conduct reconciliation and determine the most appropriate path forward for any funds actually held in Evolve.”
An Evolve spokesperson said the bank has been trying to separate itself from Synapse since late 2022 due to ledger issues it found.
Unclear timeline
Despite mounting pressure on the banks involved to unfreeze all locked accounts, chaotic records and a scarcity of funds to pay for external forensic analysis have created uncertainty about when this will happen.
Evolve asserts that due to discrepancies in its ledgers, it is reluctant to authorize payments to multiple clients until full reconciliation of mismatched ledgers is complete, particularly with respect to the group of banks used in the Synapse brokerage software.
Synapse moved most of the fintech client funds held at 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, indicated that “full reconciliation of the last dollar with the Synaps ledger” may not be possible.
Even the total shortfall in funds owed to all affected depositors is unknown. Earlier this month, McWilliams estimated the amount at $85 million. However, later reports stated that the amount ranged between $65 million and $96 million.
Advocacy with organizers
Meanwhile, the outage for thousands of fintech customers extended into its sixth week. Several Yotta customers contacted by CNBC said they used the service as their primary checking account, and their lives have been turned upside down by the situation.
In a letter sent on Thursday, McWilliams appealed to five US regulators to become more involved in Synaps' collapse, requesting resources to help affected customers understand where their money is being held and for assistance in communicating with banks.
“The impact of Synapse’s bankruptcy on end users has been devastating,” McWilliams wrote to regulators. “Many end users are unable to pay for basic living expenses and food. I appreciate your prompt attention to this request and respectfully request that your agencies act on it as quickly as possible.”
McWilliams is scheduled to submit its final report on the bankruptcy case during a hearing beginning at 1 p.m. ET on Friday.
