Nearly $109M in Yotta customer deposits vanish

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Nearly $109M in Yotta customer deposits vanish

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The business books of the insolvent fintech broker Synapse show that, according to one of the lenders involved, almost all deposits of customers of the banking app Yotta disappeared weeks ago.

A network of eight banks held $109 million in Yotta customer deposits as of April 11, Evolve Bank & Trust said in a bankruptcy court filing late Thursday.

About a month later, the ledger showed just $1.4 million in Yotta funds at one of the banks, Evolve said, adding that neither customers nor Evolve received any funds during that period.

“These irregularities in Synapse's accounting of Yotta end-user funds are just one example of the many discrepancies observed by Evolve,” the bank said. “A detailed investigation must be conducted into what happened to these funds or why the accounting provided by Synapse reflected movements of funds that did not actually occur.”

Evolve is one of the key players in a worsening situation that has seen more than 100,000 fintech customers lose access to their bank accounts since May 11. The company is now working with other banks to figure out who owes what. Its former partner Synapse, which connected customer-facing fintech apps with FDIC-backed banks, filed for bankruptcy in April due to disputes over customer balances.

Yet Evolve itself was reprimanded by the Federal Reserve last week for failing to properly manage its fintech partnerships. The regulator found that Evolve used “unsafe and unsound banking practices” and forced the bank to improve oversight of its fintech program. The Fed said the enforcement action was unrelated to the Synapse bankruptcy.

Yotta CEO and co-founder Adam Moelis said in response to this article that Synapse has stated in court filings that Evolve holds almost all Yotta customers' deposits. Evolve and Synapse disagree about who holds the funds and who is responsible for the frozen accounts.

“According to Synapse's financial report filed on May 17, Evolve holds $112 million in client funds,” Moelis said.

Evolve, headquartered in Memphis, Tennessee, issued the following statement late Friday:

“We believe that a thorough forensic accounting investigation will demonstrate that, contrary to Synapse's claims, these alleged funds are not and were not owned by Evolve,” a spokesperson told CNBC. “Evolve will continue to work with the trustee and other banks to conduct a reconciliation and determine the most appropriate path for any funds actually held by Evolve.”

The bank has been trying to divest from Synapse since late 2022 because it identified problems with its ledgers, the Evolve spokesperson said.

Unclear schedule

Despite increasing pressure on the affected banks to release all frozen accounts, there is uncertainty about when this will happen given the confusing record keeping and lack of resources for external forensic analysis.

Evolve states that due to discrepancies in the ledgers, the company is hesitant to allow payments to many customers until a full reconciliation of the mismatched ledgers is completed. This is particularly true for 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 filings.

Last week, court-appointed trustee and former FDIC chair Jelena McWilliams noted that “dollar-accurate reconciliation with the Synapse ledger” may not be possible.

Even the total amount of debt owed by all affected depositors is unknown. Earlier this month, McWilliams put the amount at $85 million, but later reports put it between $65 million and $96 million.

Pleading with regulators

The outage has now lasted for six weeks for thousands of fintech customers. Many Yotta customers contacted by CNBC said they used the service as their primary checking account and that their lives had been turned upside down by the situation.

In a letter sent Thursday, McWilliams asked five U.S. regulators to become more involved in the Synapse collapse, requesting resources to help affected customers understand where their funds are being held and to facilitate communication with banks.

“The impact of Synapse's bankruptcy on end users has been devastating,” McWilliams wrote to regulators. “Many end users are unable to pay for their living expenses and food. I thank you for your prompt processing of this request and respectfully request that your authorities respond as soon as possible.”

McWilliams is scheduled to provide her latest status report on the bankruptcy case during a hearing beginning at 1 p.m. ET on Friday.