Bank customers are now losing access to their money as more than $112 million in savings has been locked out of accounts for weeks.
Approximately 85,000 customers of the fintech startup Yotta with a total of $112 million in savings have been locked out of their accounts for three weeks, CEO and co-founder Adam Moelis told CNBC last week.
The source of the crisis is the ongoing clash between fintech middleware service provider Synapse and Tennessee-based Evolve Bank & Trust — a dispute that has sparked debate on banking-as-a-service and impacted more than a dozen startups recently, reports Banking Dive.
Customers of Yotta, a savings app that counts Synapse and Evolve as two of its banking partners, have been forced to borrow money for food and postpone upcoming events like surgeries and weddings, Moelis noted.
“The stories are heartbreaking,” the CEO told CNBC.
“We never imagined something like this could happen.
We worked with banks that are members of the FDIC.
And we never imagined a scenario like this could play out and that no regulator would step in and help.”
Synapse, an embedded financial platform, faced financial constraints when neobanks Mercury and Dave left its platform last year.
Mercury offloaded Synapse to work directly with Evolve and later sued the fintech for $30 million in an arbitration case.
Synapse filed for Chapter 11 bankruptcy in April, listing around 50-99 creditors, including Amazon Web Services, Evolve Bank & Trust, the Financial Technology Association, First Horizon Bank, Fiserv, Lineage Bank, Mastercard, Mercury, Trulioo, Yotta and TabaPay.
TabaPay, a money movement platform, agreed to acquire Synapse’s assets for $9.7 million, but the deal fell through because of “failure to meet the purchase agreement closing conditions,” a TabaPay spokesperson told Banking Dive earlier last month.
During Synapse’s wind-down, Evolve had a shortfall of roughly $42 million on its side, but none of the fintech’s other partner banks faced any such issue, Synapse’s CEO Sankaet Pathak said in a LinkedIn message with Banking Dive on Tuesday.
Evolve was aware of the deficit and received a full accounting of the discrepancy multiple times, according to Pathak.
Synapse was under the impression that Evolve was working toward addressing the discrepancies, but the night before the TabaPay sale hearing, Synapse learned that the issues had yet to be fixed.
However, a spokesperson for Evolve told Banking Dive via email that the lender disagrees with Pathak’s claims “regarding a shortfall at Evolve and has identified material irregularities in ledgers provided by Synapse,” adding that the bank is collaborating with the court-appointed U.S. Trustee to decide how to properly distribute funds to Synapse’s end-users who had their access to funds cut off.
“Evolve was not party to TabaPay’s agreement with Synapse,” the Evolve spokesperson noted.
“It is unfortunate this misinformation continues to be circulated. Evolve Bank & Trust is a well-capitalized member FDIC bank and to suggest otherwise is reckless and defamatory.
As initial court filings by the trustee revealed, Synapse was ‘grossly’ mismanaged.”
Since October 2023, Synapse transitioned most of its clients, including Yotta, from Evolve to Synapse, whereby the middleware provider held the sole responsibility for overseeing and managing the infrastructure of the Synapse Brokerage, according to the bank’s spokesperson.
Pathak, on his part, noted that the whole situation related to the foundered deal is centered around Evolve’s attempts to evade paying for the deficit its actions caused. Once the issues are rectified, the frozen funds can be released to the customers, he said.
“The resolution of these discrepancies remains crucial for protecting the depositors and making them whole.
Evolve’s timely action on these identified issues is necessary to align the [general ledger] balances with the trial balance reports,” Pathak added.
Yotta partnered with Synapse in 2022 to roll out a banking and savings app that offered higher interest rates and a secure credit card targeted at Gen Z and millennials who struggle to save.
The savings account was designed to match each savings deposit with a chance to win weekly games and prizes worth $10 million.
Yotta is one of a number of fintechs impacted by Synapse’s collapse.
Teen-focused fintech Copper was forced to abruptly terminate its bank deposit accounts and debit card services earlier this month.
Certain Copper services were offered through Synapse, and Copper-branded debit cards were issued by Evolve, the fintech’s website said.
A bankruptcy judge appointed Jelena McWilliams, a managing partner at law firm Cravath, Swaine & Moore and former chair of the Federal Deposit Insurance Corp., to serve as the Chapter 11 trustee in Synapse’s bankruptcy case.
Creditors are also pushing to convert the case to Chapter 7, which would help liquidate the company.
Judge Martin Barash of the U.S. Bankruptcy Court for the Central District of California noted during a hearing related to the appointment that “the trustee can immediately start speaking to parties in interest and developing a plan to fund the continued preservation of Synapse’s systems and data,” and come up with a solution “that allows funds to be returned to end users, to the rightful owners of those funds, as soon as humanly possible.”
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A banker is now convicted for stealing money from customers while working at Bank of America over a 10-year period.
The personal banker was arrested after her years-long scam, resulting in nearly $300,000 being stolen, came to light.
Police in Seneca, South Carolina said they received a report in 2013 about missing money from an account with Bank of America.
The victim, who also reported the incident to the Customer Service department, told police he was missing around $30,000.
Investigators worked with Bank of America for several weeks after the crime was reported and learned that an employee who had been stealing money from several people in Oconee County.
The police said the victims would use the Bank of America location in Seneca as their primary bank and Bobbi Cortese was their personal banker.
Seneca Police investigators and the US Secret Service spent nearly a decade doing more interviews.
Meanwhile, Bank of America was given time to complete an internal investigation.
It was revealed that Cortese had stolen nearly $300,000 from four people while working at the bank.
Some of the money was in the victims’ bank accounts for life insurance payouts related to the deaths of their spouses.
Others had a lifetime of earnings that was supposed to be used for their retirement, said police.
Cortese would open accounts under the victims’ names without their knowledge or consent and would perform a “shell game.”
This is when a scammer uses the money from one victim to replace what she stole from another victim.
After investigating further, police said Cortese forged several documents and issued them to the victims to hide the theft.
She committed these acts for about four years while working at the Bank of America, said police.
Cortese was arrested in May 2023 and charged with four counts of breach of trust and two counts of forgery.
She was later fired by the bank, reports The-Sun.
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Also Read: A Massive Bank Now Freezes Money From Direct Deposits
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