The repercussions of Synapse’s recent collapse are still being felt, as multiple banking partners face legal action over allegations of mismanagement concerning customer funds. One bank has claimed that user funds, previously held by the Banking-as-a-Service (BaaS) platform, were transferred prior to Synapse’s bankruptcy.
Following the failure of Synapse earlier this year, numerous customers connected to platforms like Yotta and Juno found themselves locked out of their accounts and unable to access their funds. This situation has led to significant ambiguity regarding which partner banks of Synapse are actually holding the customers’ assets.
Recently, a class-action lawsuit was initiated against several financial institutions, including American Bank, AMG National Trust, Lineage Bank, and Evolve Bank & Trust, as well as its parent company Evolve Bancorp. The lawsuit contends that the bankruptcy proceedings have brought to light grave deficiencies in the management of customer accounts, emphasizing that both Synapse and its partner banks failed to maintain precise ledgers, resulting in inaccurate customer fund balances.
According to the lawsuit, these banks have been shifting blame amongst themselves regarding their inability to unwind Synapse’s ledger and fully reconcile the missing user funds. Consequently, many affected customers find themselves without access to their money and unclear about which bank currently holds their assets.
In response, Evolve Bank has issued an open letter addressing Synapse users, outlining its efforts to rectify the situation and return funds. The letter states that a substantial portion of the assets held by Synapse were transferred to other financial institutions prior to its bankruptcy. Evolve explains, “For instance, Synapse directed Evolve to transfer all funds attributable to Yotta, Juno, and Yield Street end users to another partner bank in the Synapse Brokerage ecosystem. These transactions, totaling more than $300 million, were executed through the Federal Reserve System between October 11 and November 1, 2023.”
Furthermore, Evolve counters allegations made by the founder of Synapse, asserting that Evolve still possesses funds that could potentially reconcile discrepancies in ledgers. However, an analysis conducted by Ankura, a firm engaged to oversee the reconciliation process, confirms that this assertion is unfounded.
Evolve is committed to accurately reconstructing the ecosystem balances of affected end users and has initiated the disbursement process for approximately $24.5 million in funds it currently holds.