Fintech
An employee warns the court that bankrupt Synapse is not taking steps towards an orderly liquidation
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Bankrupt court proceedings last Friday, lawyers for banking services provider Synapse Financial Technologies said the company’s remaining employees are working feverishly to restore thousands of fintech customers’ access to money locked in frozen accounts and to shut down operations. “It has been a whirlwind effort on the part of the debtor to try to liquidate its operations and minimize disruption to others,” Synapse, Levene, Neale, Bender, Yoo told U.S. Bankruptcy Court Judge Ron Bender & Golubchik of Los Angeles. Martin R. Barash, of the Central District of California.
But yesterday, a compliance officer at the startup sent an email to Barash that paints a different picture of what did (and didn’t) happen behind the scenes.
“I wanted to bring to your attention that Synapse has made no attempt to contact any of our platforms (our Fintech customers) or their end users,” the email read. “From what I understand, the additional time you gave Synapse to operate was to give us time to put in place an orderly liquidation process. To date there is no process underway and, as I have already indicated, no communication beyond what has been publicly reported.” Synapse did not respond to Forbes’ request for comment.
Last Friday, Barash delayed until next Friday rule on a U.S. trustee’s request that Synapse’s Chapter 11 filing, which leaves control with management, be converted to a Chapter 7 liquidation, with the trustee running things. At the very least, the trustee had argued, Synapse’s management should be removed because it had “grossly mismanaged the assets.” But Synapse’s lawyers responded that current management was best placed to address the situation and minimize disruption.
The employee’s email suggested, however, that Synapse management was not acting as necessary. “If something isn’t done pretty much immediately when the deadline expires on Friday, any Synapse platform and its end users will be left high and dry,” he warns.
The author of that email tells Forbes that, until yesterday, Synapse’s fintech customers were contacting the company with routine questions. The person claims that despite the public bankruptcy proceedings, these customers appeared unaware of the likely imminent move to liquidation proceedings and received no instructions from Synapse on what to do if the case was converted. Synapse had 100 fintech customers, with 10 million end users, as of January 2024, according to a court filing from the company.
However at least one Synapse customer, YieldStreet, says Synapse is working hard to restore access to customers. YieldStreet, among other clients, also committed to providing Synapse with funding to continue paying employees for another week.
Last month, payment processor TabaPay plans announced to acquire Synapse’s operating assets, but the deal fell through due to unresolved issues between Synapse and one of its banking partners, Arkansas-based Evolve Bank & Trust. A dispute between the two is also responsible for the closure of the accounts of tens of thousands of fintech customers since May 11.
Today, thousands of fintech customers, including those at Yotta Technologies, Juno Finance and Copper Banking, are locked out of their deposit accounts. Customers who set up direct deposit with these accounts are unable to transfer their incoming paycheck to a functioning account, according to an affected consumer who says he has $20,000 in his Juno Finance account.
“Direct deposits are also affected during the temporary service outage,” Juno Finance says customer support page law. “If you expect direct deposits from your employer, these will be returned to the originating account. We recommend contacting your employer to redirect direct deposits to your external bank account.
However, when the Juno Finance customer contacted their payroll service provider, Rippling, they responded that the direct deposit had been successfully sent to their Juno Finance account. They advised the user to contact their bank to resolve the issue.