Synapse Bankruptcy: Yotta CEO Reveals 85,000 Bank Accounts Locked
For three weeks, 85,000 Yotta customers, with a collective $112 million in savings, have been locked out of their accounts. This disruption
For three weeks, 85,000 Yotta customers, with a collective $112 million in savings, have been locked out of their accounts. This disruption stems from a dispute between Synapse and Evolve Bank & Trust, leading to Synapse’s bankruptcy.
Yotta CEO Adam Moelis explained:
“We never imagined a scenario like this,” highlighting the unexpected regulatory inaction that left users stranded without access to their funds. Many Yotta users, dependent on these accounts for daily transactions and emergency savings, have faced severe financial distress.
The Impact on Users
The crisis began on May 11, triggered by disagreements between Synapse, a fintech middleman, and Tennessee-based Evolve Bank & Trust. This dispute resulted in the lockup of accounts at Yotta and several other fintech startups. Synapse’s bankruptcy followed after key clients abandoned the firm over disagreements regarding the tracking of customer funds.
The fallout has been significant:
“The stories are heartbreaking,” Moelis said, detailing how users have had to borrow money for essentials like food and how critical events like surgeries and weddings have been jeopardized.
Moelis, who co-founded Yotta in 2019 to help Americans save money more effectively, now finds his company at the center of a crisis. “We worked with banks that are members of the FDIC.
We never imagined something like this could happen,” he added, underscoring the unexpected nature of the situation.
The Broader Implications
The Synapse bankruptcy has exposed vulnerabilities in the fintech sector, particularly in the “banking as a service” model. This model allowed consumer fintech companies to launch savings accounts and debit services quickly, with firms like Synapse acting as intermediaries between startups and FDIC-backed banks.
The heart of the dispute lies in financial record-keeping: Synapse and Evolve disagree on how much of Yotta’s funds are held at Evolve versus other banks Synapse worked with.
This crisis has predominantly affected smaller fintech firms, especially after larger players like Mercury and Dave left the Synapse platform. Moelis estimates that at least 200,000 customer accounts with balances are locked.
Despite Synapse’s claim of having 10 million end users, Moelis believes the number of active accounts is much smaller. “To me, if this was happening at a larger scale, regulators would have done something by now,” he commented, highlighting the discrepancy in regulatory response compared to past banking crises involving wealthier clients.
Hope on the Horizon
In the California bankruptcy court overseeing Synapse’s failure, former FDIC Chair Jelena McWilliams was appointed as trustee. Her role is to maintain Synapse’s systems and develop a plan to return funds to their rightful owners. Judge Martin Barash stated that the goal is to release funds “as soon as humanly possible.”
Moelis remains hopeful but neutral regarding the Synapse-Evolve dispute. “I don’t know who’s right or who’s wrong,” he said. “We know how much money came into the system, and we are certain that that’s the correct number. The money doesn’t just disappear; it has to be somewhere.”
The situation remains critical for thousands of Yotta users waiting for access to their funds, and the outcome will likely influence future regulatory approaches to fintech partnerships.
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