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The books of collapsed fintech intermediary Synapse show nearly all of the deposits from customers of banking app Yotta went missing weeks ago, according to one lender.
As of April 11, the network of eight banks held $109 million in Yotta customer deposits. Evoluv Bank & Trust said so in a letter to the bankruptcy court. filed late Thursday.
About a month later, only $1.4 million worth of Yotta funds were found in the ledger, stored in one of the banks, Evolve reports. He added that neither clients nor Evolve received funds during this period.
“These irregularities in Synapse’s accounting of Yotta’s end-user funds are just one example of many discrepancies that Evolve has observed,” the bank said. “There needs to be a detailed investigation into what happened to these funds, or alternatively, why the ledger provided by Synapse reflects a movement of money that did not in fact occur.”
Evolve, one of the key players in deepening predicament due to which more than 100,000 fintech clients have had their bank accounts blocked since May 11, is trying to collect data with other banks on who owes what. Its former partner Synapse, which connected fintech apps for customers to FDIC-backed banks, filed for bankruptcy in April amid disputes over customers’ 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 unreasonable banking practices” and forced the bank to improve oversight of its fintech program. The Fed said the enforcement action was not related to Synapse’s bankruptcy.
Yotta CEO and co-founder Adam Moelis responded to this article by saying that Synapse has stated in court documents that Evolve owns the deposits of nearly all of Yotta’s customers. Evolve and Synapse disagree on who owns the funds and who is responsible for the frozen accounts.
“According to Synapse’s May 17 trial balance report, Evolve holds $112 million of client funds,” Moelis said.
Evolve, which is headquartered in Memphis, Tennessee, issued this statement late Friday:
“We believe that a thorough forensic accounting investigation will reveal that these purported funds are not and were not in the possession of Evolve, contrary to Synapse’s claims,” a spokesperson told CNBC. “Evolve will continue to work with the Trustee and other banks to complete reconciliations and determine the most appropriate path for any funds actually held by Evolve.”
The bank has been trying to separate itself from Synapse since late 2022 due to problems it discovered with its ledger, according to an Evolve spokesperson.
Unclear timing
Despite growing pressure on the banks involved to unfreeze all frozen accounts, confusing records and a lack of funds to pay for an external forensic audit have created uncertainty about when this will happen.
Evolve claims that because of the discrepancies in the ledgers, it is hesitant to allow payments to be made to many clients until a full reconciliation of the discrepant ledgers is completed, particularly for the group of banks used in the Synapse brokerage program.
Synapse transferred the majority of fintech client funds held by Evolve to a group of banks affiliated with its brokerage program at the end of 2023, Evolve said in court papers.
Last week, the court-appointed trustee, former FDIC Chairman Elena McWilliams, noted that “complete reconciliation with last dollar with the Synapse registry” may not be possible.
Even the total shortfall in funds due to all affected depositors is unknown. Earlier this month, McWilliams estimated the amount at $85 million; but subsequent reports said it was between $65 million and $96 million.
Appeal to regulators
Meanwhile, disruptions to thousands of fintech clients have continued for the sixth week. Many Yotta customers contacted by CNBC said they used the service as their primary checking account and the situation turned their lives upside down.
IN letter On Thursday, McWilliams called on five U.S. regulators to take a more active role in the Synapse debacle, asking for resources to help affected customers understand where their funds are held and to help communicate with banks.
“The impact of Synapse’s bankruptcy on end users was devastating,” McWilliams wrote to regulators. “Many end users are unable to pay basic expenses for accommodation and food. I appreciate your prompt attention to this request and respectfully request that your agencies respond to it as quickly as possible.”
McWilliams plans to present his latest status report on the bankruptcy case during a hearing that begins at 1 pm ET on Friday.