A Yotta customer in South Carolina has filed the latest class-action lawsuit against banks involved in the collapse of bank-fintech middleware provider Synapse.
The lawsuit filed in a Tennessee court this week singles out Memphis-based Evolve Bank and Franklin, Tennessee-based Lineage Bank. It accused the banks of negligent monitoring and mismanagement of funds belonging to customers of Synapse’s fintech partners. Evolve, and Yotta declined requests for comment.
“Lineage Bank has consistently demonstrated transparency, diligence and accountability, returning approximately 99% of the funds it held to affected Synapse customers since Synapse collapsed,” a spokesman for the bank said in a statement. “We recognize Synapse’s collapse has caused a real hardship to many, and we will continue to do our part to return the remaining 1% of Synapse-linked funds to their rightful owners. The critical question that remains is ‘why do the Synapse-generated trial balances exceed the collective balance of Synapse-related funds held at the banks?’ Lineage will continue cooperating with the Synapse bankruptcy trustee and interested parties in the pending court proceedings to understand this critical issue.”
The banks’ use of Synapse and “failure to adequately monitor and safeguard” customer money in their control “led to significant ledger discrepancies in account balances,” the complaint states. These discrepancies have meant customers cannot get their money back. As a result, fintech customers “had their funds lost, stolen, or misplaced,” while none of the banks took responsibility,” the complaint said.
“Given the limitations of the bankruptcy court’s jurisdiction over Evolve and Lineage and the lack of assets in the Synapse bankruptcy estate to pay for anything, I think that efforts like this class action against the banks are the only option for people who lost money,” Todd Baker, Columbia University professor and managing principal at Broadmoor Consulting, told American Banker.
Discovery in such lawsuits could answer some of the key questions, such as whether Evolve used Synapse customer funds to pay for reserves and fees promised by Synapse as it was beginning its decline, Baker said.
“I was expecting that another federal enforcement action against Evolve might bring more information about what happened, if not the return of missing funds, but the change in regulatory leadership and the mass layoffs bring even that into doubt,” he said.
The most recent lawsuit was brought by Dustin Justus, a Yotta savings app customer. Last May, a month after Synapse filed for bankruptcy, Justus tried to take his money out of that account, but the transfer was cancelled, according to the complaint. At that time, his account balance showed $4,420.50. Months later, Justus received $3.46 in reconciliation. He appealed this outcome but his appeal was rejected.
Synapse’s bankruptcy “process has revealed significant failings, including that Synapse
and defendants did not maintain accurate ledgers, leading to incorrect customer fund balances,” the complaint states. “As a result, many customers have been left unable to access funds held [by the banks] and unable to pay essential bills or living expenses.”
The complaint noted that the four partner banks have not accounted for and returned all deposits belonging to fintech users.
“Instead, defendants are (1) blaming each other for the inability to unwind Synapse’s ledger and fully reconcile missing user funds, and/or (2) asserting that all funds maintained at those partner banks have been distributed,” the complaint stated.
The allegations in the complaint are not new or significantly different from earlier lawsuits, except that this one emphasized that the banks involved failed to do their jobs.
“Defendants’ lack of direct bank access to Synapse’s ledger, lack of contingency
planning, and failure to maintain their own copy of the ledger all contributed to their respective
failures to fulfill the most fundamental responsibility in banking: to keep track of the money,” the complaint stated.