Fintech
Nearly $109 million in Yotta customer deposits vanish
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About a month later, the ledger showed just $1.4 million in Yotta funds held at one of the banks, Evolve said. He added that neither customers nor Evolve received funds in that time period.
“These irregularities in Synapse’s accounting of Yotta end-user funds are just one example of the numerous discrepancies that Evolve has observed,” the bank said. “A detailed investigation must be undertaken into what happened to these funds, or alternatively, why the ledger provided by Synapse reflected money movements which in reality did not occur.”
Evolve, one of the protagonists of an in-depth analysis preach which has left more than 100,000 fintech customers locked out of their bank accounts since May 11, has attempted to put together a register of who is owed what with other banks. Its former partner Synapse, which connected customer-facing fintech apps to FDIC-backed banks, filed for bankruptcy in April amid disputes over customer balances.
But Evolve itself was scolded by the Federal Reserve last week for failing to adequately 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 program. The Fed said the enforcement action was separate from the Synapse failure.
Yotta CEO and co-founder Adam Moelis said in response to this article that Synapse alleged in court documents that Evolve held nearly all of Yotta customers’ deposits. Evolve and Synapse disagree over who holds the funds and who is responsible for the frozen accounts.
“According to Synapse’s balance sheet audit report provided on May 17, there is $112 million in customer funds held at Evolve,” Moelis said.
Evolve, which is based in Memphis, Tennessee, released this statement late Friday:
“We believe that a meticulous forensic accounting investigation will reveal that these alleged funds are not, and were not, in Evolve’s possession, contrary to Synapse’s claims,” a spokesperson told CNBC. “Evolve will continue to work with the Trustee and other banks to conduct reconciliation and determine the most appropriate path forward for all funds actually held at Evolve.”
The bank has been trying to separate itself from Synapse since late 2022 because of the registry issues, the Evolve spokesperson said.
Despite growing pressure on the banks involved to unfreeze all frozen accounts, messy records and a shortage of funds to pay for an external forensic analysis have created uncertainty about when this will happen.
Evolve claims that due to record discrepancies, it is reluctant to allow payments to many customers until a full reconciliation of mismatched records is completed, particularly those relating to a 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 in late 2023, Evolve said in court documents.
Last week, the court-appointed trustee, former FDIC Chair Jelena McWilliams, noted that a “full reconciliation with the last dollar with the Synapse registry” may not be possible.
The total shortfall in funds owed to all affected depositors is also not known. Earlier this month, McWilliams set the amount at $85 million; but in subsequent reports it was stated that it was between $65 and $96 million.
Meanwhile, the outage for thousands of fintech customers is now in its sixth week. Many Yotta customers contacted from CNBC said they had been using the service as their primary checking account and had had their lives turned upside down by the situation.
In a letter Posted Thursday, McWilliams called on five U.S. regulators to get more involved in the Synapse collapse, asking for resources to help affected customers understand where their funds are held and to facilitate communication with banks.
“The impact of Synapse’s failure 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 ask that your agencies act as quickly as possible.”
McWilliams will present her latest status report on the bankruptcy case during a hearing starting Friday at 1 p.m. ET.