WASHINGTON — One of the fintech firms affected by the collapse of fintech middleman Synapse has filed a lawsuit against one of the banks in the case, accusing the bank of “grotesque misconduct” in how it handled customer funds.
When Synapse, a middleware company that connected fintech apps like Yotta and Juno with banks like Evolve, fell apart, it set off a chain of events that led to millions of consumer funds frozen in a bankruptcy case. Thousands of customers of these apps,
Bankruptcy documents have suggested that there’s an estimated $85 million shortfall between what Synapse’s former partner banks are holding and what consumers are owed.
Yotta last week filed a lawsuit against Evolve in the U.S. District Court in the Northern District of California, accusing Evolve of having “conspired” with Synapse to take the missing consumer funds. Yotta said that the outcry and confusion over FDIC insurance and whether funds are safe with the app has hurt its business.
“Yotta’s reputation in the market, once sterling, has been tarnished, potentially beyond repair,” the company said in the lawsuit. “Yotta’s banking-related revenues have evaporated and the enterprise value of its banking business, once substantial, has dwindled to nearly nothing.”
Yotta cites its own investigation in making the accusation.
Before Synapse collapsed, Evolve debited customer accounts for more than $25 million, in transactions never authorized by customers, Yotta said.
“Evolve had no right to take this money from customers and never informed Yotta or its customers that it was doing so,” according to the lawsuit. “Although Synapse and Evolve purported to report all transactions involving customer funds, they concealed these transactions from Yotta and its customers.”
Evolve and Synapse also inflated account balances reported to Yotta to make it appear that the “misappropriated” funds were still in customers’ accounts, the lawsuit said.
“Had Yotta known the truth about Evolve’s malfeasance, it never would have done business with Evolve, and Yotta’s customers would have been spared a brutal theft at the hands of this bank,” the fintech company said.
While the Synapse bankruptcy case is ongoing, bank regulators have started proposing rules and
The FDIC earlier this week proposed a new rule that
The rule is “an important step to ensure that banks know the actual owner of deposits placed in a bank by a third party such as Synapse, whether the deposit has actually been placed in the banks, and that the banks are able to provide the depositor their funds even if the third party fails,” FDIC Chairman Martin Gruenberg said in a statement.
“Given the rapid growth and increased complexity of these third-party deposit arrangements, instituting requirements to strengthen recordkeeping in order to ensure knowledge of the actual owner of the deposits and to support the prompt payment of deposit insurance in the event of a bank’s failure is necessary and past due,” he said.