The bankruptcy of fintech company Synapse has left thousands of Americans unable to access their savings, with many recovering only a fraction of their deposits. Synapse served as a middleman between fintech startups like Yotta and traditional banks, including Evolve Bank & Trust, which held customer funds. A dispute between Synapse and Evolve led to the loss of up to $96 million, with the location of much of the money still unknown.
Customers, like former teacher Kayla Morris, believed their accounts were insured and secure. Morris, who deposited over $280,000 in proceeds from her home sale into a Yotta account, was devastated to learn she would recover just $500. Similarly, Zach Jacobs, who lost $94,000, has organized a group called Fight For Our Funds to advocate for victims. “This is the first reverse bank robbery in the history of America,” Jacobs said.
While some banks have returned portions of the funds they held, the disbursements are incomplete, leaving customers uncertain about the fate of their money. Regulators, including the FDIC and Federal Reserve, have stated that their protections do not extend to nonbank entities like Synapse, leaving customers with limited recourse.
The case has exposed cracks in the fintech ecosystem, where startups rely on intermediaries to manage customer funds. While fintech accounts often advertise FDIC insurance, the protections depend on precise records, which Synapse reportedly lacked. A proposed FDIC rule would require banks to maintain better records for fintech customers, but for those affected, the measures come too late.
Sources include: CNBC, FDIC statements, court filings.
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