Thousands of Americans see their savings vanish

For 15 years, Kayla Morris, a former school teacher in Texas, put all the money she could save into a house for her growing family.

When she and her husband sold their home last year, they smuggled the proceeds, $282,153.87, into a safe haven, what they thought was a savings startup account. Yotta It takes place in a real bank.

Morris, like thousands of other customers caught up in the collapse of a behind-the-scenes fintech company called Synapse, was locked out of her account for six months as of November. She held out hope that her money was still safe. Then she found out how much money was at Evolve Bank & Trust, the lender where her funds were held. was supposed to be heldwas ready to return to her.

“Last Monday, I was informed that Evolve would only pay $500 of the $280,000,” Morris said in a court hearing last week, her voice shaking. “It’s really devastating.”

The crisis began in May when a dispute between Synapse and Evolve Bank over customer balances boiled over and the fintech intermediary cut off access to key systems used to process transactions. Synapse has helped non-bank fintech startups like Yotta and Juno offer checking accounts and debit cards by partnering with small lenders like Evolve.

Shortly after Synapse’s bankruptcy following an exodus of fintech customers, a court-appointed receiver discovered that up to $96 million in customer funds were missing.

The mystery of where the funds are teeth Despite six months of efforts through the courts between the four banks involved, the matter remains unresolved. It is mainly Andreessen HorowitzBacked Synapse doesn’t have the funds to hire an outside firm to fully reconcile its books, according to bankruptcy trustee Jelena McWilliams.

But what is now clear is that ordinary Americans like Morris are bearing the brunt of the shortfall, receiving little or nothing from their savings accounts. what they believed was Full faith and confidence in the United States Government.

The losses illustrate the risks of a system in which customers had no direct relationship with banks and instead relied on startups to manage their funds, shifting that responsibility to intermediaries like Synapse.

There are thousands of others like Morris. There is still no complete tally of customers left short, but Yotta alone has 13,725 customers with a total of 1,180 deposits despite depositing $64.9 million, according to figures shared by Yotta’s co-founder and CEO. states that he has been offered $1,000,000. Adam Morris.

CNBC spoke to 12 customers who found themselves in this predicament, with debts ranging from $7,000 to well over $200,000.

From FedEx drivers to small business owners, teachers to dentists, they are turning to fintechs like Yotta for higher interest rates and innovative features, or even disconnecting from traditional banks. He said years of savings were lost as a result of the incident.

One of Yotta’s customers, Zach Jacobs, decided to take action when he logged on to Evolve’s website on November 4 and noticed that of the $94,468.92 he deposited, only $128.68 was returned to him. did.

The 37-year-old business owner, based in Tampa, Florida, started organizing with other victims online and created a volunteer committee for the group. let’s fight for our funds. It is his hope that they will receive attention from the media and politicians.

So far, 3,454 people have signed the petition, with a combined loss of $30.4 million.

“When I tell people this, they’re like, ‘That can’t happen,'” Jacobs said. “There just happened to be a bank robbery. This is the first reverse bank robbery in American history.”

Andrew Melone, a chemical engineer from Chicago, said he was hoping to get back the $200,000 he put into Yotta. Earlier this month, he received an unexpected PayPal transfer of $5 from Evolve.

“When I signed up, I was given an Evolve routing and account number,” Meloan said. “Now they’re saying I only have $5 of my money and the rest is elsewhere. I feel like I’ve been scammed.”

Unlike betting on meme stocks or cryptocurrencies, where users naturally assume some risk, most customers consider funds held in Federal Deposit Insurance Corporation-backed accounts to be the safest place to keep their money. I was there. People relied on Synapse-powered accounts for everyday expenses like buying groceries and paying rent, or to save for major life events like buying a home or surgery.

Several people interviewed by CNBC said signing up seemed like a good bet because Yotta and other fintech companies were touting that deposits through Evolve were FDIC-insured. .

“I was convinced this was just a savings account,” Morris said at last week’s hearing. “We don’t take risks and we’re not gamblers.”

The Synapse agreement that customers received after signing up for a checking account stated that their funds would be insured by the FDIC up to $250,000, according to a version seen by CNBC.

“According to the FDIC, no depositor has ever lost a penny of their FDIC-insured funds,” the 26-page agreement states.

Abandoned by U.S. regulators who have so far refused to act, they are left with few clear options to get their money back.

In June, the FDIC announced: clear The insurance fund did not cover the failure of nonbanks like Synapse, and there was no guarantee that funds would be recovered through the courts if such companies failed.

Next month, the Federal Reserve said As Evolve’s lead federal regulator, it will monitor the bank’s progress in “returning all customer funds to users.”

“We have a responsibility to ensure that banks operate in a safe and sound manner and comply with applicable laws, including laws that protect consumers,” said Mark E. van der Weide, Federal Reserve General Counsel. said. letter.

In September, the FDIC proposed new rules that would require banks to keep detailed records about customers of fintech apps, increasing the likelihood that customers would be eligible for compensation in the event of a future disaster and that funds may go missing. reduced the risk of

McWilliams, who served as FDIC chairman during the first Trump administration, told the California judge overseeing the Synapse bankruptcy case last week that he was “disappointed” by the financial regulators’ decision not to support the case. spoke.

The FDIC and the Federal Reserve declined to comment for this story, and Mr. McWilliams did not respond to emails.

Things weren’t always so dire. Early in the proceedings, McWilliams suggested to the judge: Martin Barash Customers would be given partial payments, effectively spreading the pain among everyone.

But that would have required more coordination between Evolve and other lenders holding customer funds than what ultimately happened.

As the hearing dragged on, the other three institutions – AMG National Trust, Lineage Bank and American Bank – began disbursing their holdings, while Evolve struggled to implement what it initially described as a comprehensive settlement. It took several months.

When it evolves completed In the October effort, the company said it was only able to identify the funds held by users, and the whereabouts of missing funds were not known. At least some of that was due to “very large bulk transfers” of funds where the owners of the funds were not identified, Evolve’s lawyers testified last week.

As a result, the bankruptcy process revealed relative winners and losers.

Some end users recently received full refunds of their funds, but others, like Indiana FedEx driver Natasha Craft, received nothing, she told CNBC.

As of Nov. 12, the four banks had released $193 million to customers, more than 85% of the amount they had at the beginning of the year.

The Nov. 13 hearing was the only public forum for victims to voice their pain. Dozens of victims lined up in hopes of testifying that they had received a small portion of the money they were owed. The event lasted over 3 hours.

“You can’t imagine the panic I felt when I was told I would receive 81 cents,” said Andreate Caligire, who said he owed $22,000. “I don’t have any money, I don’t have a path forward, I don’t have anything.”

An Evolve spokesperson said the “vast majority” of funds held for Yotta and other customers were transferred to other banks in October and November 2023 at the direction of Synapse.

“Where end-user funds go after that is an important question, and unfortunately, no Evolve company can answer that with the data we currently have,” the spokesperson said.

Yotta said Evolve paid the fintech company and the trustee “despite Evolve’s admission in court that Evolve had shortfalls prior to October 2023,” according to an Evolve spokesperson. He said he did not provide any information about how the amount was determined. I recently quit my job at a bank. “We hope regulators take notice and act.”

in statement In a statement released ahead of this month’s hearing, Evolve said other banks had refused to participate in efforts to create a master ledger, while AMG and Lineage said Evolve held missing funds. He said it was “irresponsible and dishonest” to suggest that he did.

Barash said last week that the window for cooperation is rapidly closing as banks and other parties accuse each other and litigation mounts, including a pending class action lawsuit.

“My impression is that as time goes on, unless the banks involved are able to resolve this issue on their own initiative, the issue will not be resolved,” Barash said. “There’s nothing optimistic about what I’m telling you.”