Oscar Wong | moment | Getty Images
For 15 years, former Texas teacher Kayla Morris poured every dollar she could save into a house for her growing family.
When she and her husband sold the house last year, they stashed the proceeds, $282,153.87, in what they thought would be a safe place – an account with savings startup Yotta that was held at a real bank.
Morris, like thousands of other customers, was caught up in the collapse of a behind-the-scenes fintech company called Synapse and has been locked out of her account for six months since November. She hoped that her money was still safe. Then she learned how much Evolve Bank & Trust, the lender where her funds were supposed to be held, was willing to give her back.
“Last Monday we were informed that Evolve would only pay us $500 of that $280,000,” Morris said in a trembling voice during a court hearing last week. “It’s just devastating.”
The crisis began in May when a dispute between Synapse and Evolve Bank over customer balances escalated and the fintech middleman blocked access to a key system used to process transactions. Synapse helped non-bank fintech startups like Yotta and Juno offer checking accounts and debit cards by connecting them with small lenders like Evolve.
Immediately after Synapse's bankruptcy, which came after its fintech customers defected, a court-appointed trustee discovered that up to $96 million in customer funds were missing.
The mystery of where these funds are has not been resolved despite six months of legal efforts between the four banks involved. According to Jelena McWilliams, the bankruptcy trustee, this is primarily because the estate of Andreessen Horowitz-backed Synapse does not have the money to hire an outside firm to carry out a full reconciliation of its books.
But what is now clear is that ordinary Americans like Morris will bear the brunt of this deficit and receive little or nothing from their savings accounts which they believed was backed by the full faith and credit of the U.S. government.
The losses highlight the risks of a system in which customers had no direct relationships with banks but instead relied on startups to keep track of their funds, which shifted that responsibility to middlemen like Synapse.
Zach Jacobs, 37, of Tampa, Florida, helped start a group called Fight For Our Funds after he lost more than $94,000 he had in a fintech savings account called Yotta.
Courtesy: Zach Jacobs
“Reverse Bank Robbery”
There are thousands of others like Morris. While there is not yet a complete list of those who have not yet paid, Yotta alone has 13,725 customers saying they are being offered a total of $11.8 million despite having made $64.9 million in deposits , according to figures shared by Yotta co-founder and CEO Adam Moelis.
CNBC spoke to a dozen customers who found themselves in this predicament and were owed amounts ranging from $7,000 to well over $200,000.
From FedEx drivers to small business owners, teachers to dentists, they described losing years of savings after turning to fintechs like Yotta for higher interest rates, for innovative features or for turning away from traditional banks.
A Yotta customer, Zach Jacobs, logged into Evolve's website on November 4th and saw that he only received $128.68 back out of the $94,468.92 he deposited – and decided to act.
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Zach Jacobs decided to take action after logging onto Evolve's website on November 4th and discovering that he had only received $128.68 of his $94,468.92 in deposits.
Courtesy: Zach Jacobs
The 37-year-old business owner from Tampa, Florida, began organizing with other victims online and formed a panel of volunteers for a group called Fight For Our Funds. He hopes that they will attract the attention of the press and politicians.
So far, 3,454 people have signed up and reported losing a total of $30.4 million.
“When you tell people about it, you think, 'There's no way this is happening,'” Jacobs said. “A bank just robbed us. This is the first reverse bank robbery in American history.”
Andrew Meloan, a chemical engineer from Chicago, said he was hoping to get back the $200,000 he deposited with Yotta. Earlier this month, he unexpectedly received a PayPal transfer from Evolve for $5.
“When I signed up, they gave me an Evolve routing and account number,” Meloan said. “Now they say they only have $5 of my money and the rest is somewhere else. I feel betrayed.”
A bank just robbed us. This is the first reverse bank robbery in American history.”
Zach Jacobs
Yotta customer
Cracks in the system
Unlike meme stocks or crypto bets, where the user naturally assumes some risk, most customers were looking at funds deposited on funds deposited by the Federal Deposit Insurance Corp. Supported accounts are held as the safest place to keep your money. People relied on Synapse-powered accounts for everyday expenses like grocery shopping and rent payments or to save for major life events like home purchases or surgeries.
Several people interviewed by CNBC said the filing was a good choice because Yotta and other fintechs have advertised that deposits through Evolve are FDIC insured.
“We were assured it was just a savings account,” Morris said during last week’s hearing. “We are not risk takers, we are not gamblers.”
A Synapse contract that customers received after signing up for checking accounts said user funds were insured by the FDIC for up to $250,000, according to a version seen by CNBC.
“According to the FDIC, no depositor has ever lost a penny of FDIC-insured funds,” the 26-page contract states.
“We are responsible”
They are being left in the lurch by US regulators, who have so far refused to intervene, and are left with few clear options to get their money back.
In June, the FDIC clarified that its insurance fund does not cover the failure of non-bank companies such as Synapse and that if such a company fails, legal recovery of the funds is not guaranteed.
The next month, the Federal Reserve announced that, as Evolve's primary federal regulator, it would monitor the bank's progress “in returning all customer funds” to users.
“We are responsible for ensuring that the bank operates in a safe and sound manner and complies with applicable laws, including those designed to protect consumers,” Mark E. Van Der Weide, Fed general counsel, said in a letter.
In September, the FDIC proposed a new rule that would force banks to keep detailed records of fintech app customers, increasing the chances that they will qualify for coverage in a future disaster and reducing the risk that Funds are lost.
McWilliams, herself a former FDIC chairwoman during the first Trump presidency, told the California judge hearing the Synapse bankruptcy case last week that she was “disheartened” that all financial regulators had decided not to help.
The FDIC and Fed declined to comment for this story and McWilliams did not respond to emails.
Jelena McWilliams, Chairwoman of the Federal Deposit Insurance Corporation, testifies during a House Financial Services Committee hearing in the Rayburn Building entitled “Regulatory Oversight: Ensuring the Safety, Soundness and Accountability of Megabanks and Other Depository Institutions” on Thursday, May 16 , out of. 2019.
Tom Williams | CQ Roll Call, Inc. | Getty Images
Winners and losers
Things hadn't always seemed so bad. Early in the trial, McWilliams suggested to Judge Martin Barash that customers be given partial payment, essentially spreading the pain among everyone.
But that would have required more coordination between Evolve and the other lenders that had customer money than was ultimately the case.
As the hearings dragged on, the three other institutions, AMG National Trust, Lineage Bank and American Bank, began disbursing the funds at their disposal, while Evolve took months to conduct what it said was a comprehensive reconciliation.
Around the time Evolve concluded its efforts in October, it said it could only find out user funds it held, but not the location of the missing funds. That's at least partly due to “very large mass transfers” of funds without specifying who the money belongs to, a lawyer for Evolve testified last week.
As a result, the bankruptcy process has produced relative winners and losers.
Some end users recently received all of their money back, while others, like Indiana FedEx driver Natasha Craft, received none, she told CNBC.
Natasha Craft, a 25-year-old FedEx driver from Mishawaka, Indiana. Your Yotta bank account has been blocked since May 11th.
Courtesy: Natasha Craft
As of November 12, the four banks released $193 million to customers, representing more than 85% of their holdings at the start of the year.
The Nov. 13 hearing provided the only public venue for victims to express their distress. Dozens of victims lined up hoping they could testify that they would receive a tiny fraction of what they owed. The event lasted longer than three hours.
“You can't imagine the panic when they said I got 81 cents,” said Andreatte Caliguire, who said she was owed $22,000. “I have no money, I have no way forward, I have nothing.”
“Nothing optimistic”
According to an Evolve spokesperson, “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 these end-user funds subsequently went is an important question, but unfortunately Evolve cannot provide an answer with the data currently available,” the spokesperson said.
Yotta says Evolve did not provide fintech firms and the trustee with information about how it determined payouts, “despite admitting in court that Evolve had a deficit before October 2023,” according to a spokesperson for the startup, who noted that several executives had recently left the bank. “We hope regulators will take note and act.”
In statements released ahead of this month's hearing, Evolve said other banks refused to participate in its efforts to create a ledger, while AMG and Lineage said Evolve's suggestion that they were concerned about the missing resources, was “irresponsible and disingenuous”.
As banks and other parties level accusations at each other and lawsuits mount, including pending class-action lawsuits, the window for cooperation is rapidly closing, Barash said last week.
“As time goes on, I get the impression that if the banks involved can't sort this out voluntarily, it may not get resolved,” Barash said. “There is nothing optimistic about what I am telling you.”
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