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For 15 years, former Texas schoolteacher Kayla Morris put every dollar she could save into a home for her growing family.
When she and her husband sold the house last year, they stowed away the proceeds, $282,153.87, in what they thought of as a safe place — an account at the savings startup Yotta held at a real bank.
Morris, like thousands of other customers, was snared in the collapse of a behind-the-scenes fintech firm called Synapse and has been locked out of her account for six months as of November. She held out hope that her money was still secure. Then she learned how much Evolve Bank & Trust, the lender where her funds were supposed to be held, was prepared to return to her.
“We were informed last Monday that Evolve was only going to pay us $500 out of that $280,000,” Morris said during a court hearing last week, her voice wavering. “It’s just devastating.”
The crisis started in May when a dispute between Synapse and Evolve Bank over customer balances boiled over and the fintech middleman turned off access to a key system used to process transactions. Synapse helped fintech startups like Yotta and Juno, which are not banks, offer checking accounts and debit cards by hooking them up with small lenders like Evolve.
In the immediate aftermath of Synapse’s bankruptcy, which happened after an exodus of its fintech clients, a court-appointed trustee found that up to $96 million of customer funds was missing.
The mystery of where those funds are hasn’t been solved, despite six months of court-mediated efforts between the four banks involved. That’s mostly because the estate of Andreessen Horowitz-backed Synapse doesn’t have the money to hire an outside firm to perform a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.
But what is now clear is that regular Americans like Morris are bearing the brunt of that shortfall and will receive little or nothing from savings accounts that they believed were backed by the full faith and credit of the U.S. government.
The losses demonstrate the risks of a system where customers didn’t have direct relationships with banks, instead relying on startups to keep track of their funds, who offloaded that responsibility onto middlemen like Synapse.
Zach Jacobs, 37, of Tampa, Florida helped form a group called Fight For Our Funds after losing more than $94,000 that he had in a fintech savings account called Yotta.
Courtesy: Zach Jacobs
Adam Moelis.
CNBC spoke to a dozen customers caught in this predicament, people who are owed sums ranging from $7,000 to well over $200,000.
From FedEx drivers to small business owners, teachers to dentists, they described the loss of years of savings after turning to fintechs like Yotta for the higher interest rates on offer, for innovative features or because they were turned away from traditional banks.
One Yotta customer, Zach Jacobs, logged onto Evolve’s website on Nov. 4 to find he was getting back just $128.68 of the $94,468.92 he had deposited — and he decided to act.
Zach Jacobs decided to act after logging onto Evolve’s website on Nov. 4 to find he was getting just $128.68 of his $94,468.92 in deposits.
Courtesy: Zach Jacobs
The 37-year-old Tampa, Florida-based business owner began organizing with other victims online, creating a board of volunteers for a group called Fight For Our Funds. It’s his hope that they gain attention from press and politicians.
So far, 3,454 people have signed on, saying they’ve lost a combined $30.4 million.
“When you tell people about this, it’s like, ‘There’s no way this can happen,'” Jacobs said. “A bank just robbed us. This is the first reverse bank robbery in the history of America.”
Andrew Meloan, a chemical engineer from Chicago, said he had hoped to see the return of $200,000 he’d deposited with Yotta. Early this month, he received an unexpected PayPal remittance from Evolve for $5.
“When I signed up, they gave me an Evolve routing and account number,” Meloan said. “Now they’re saying they only have $5 of my money, and the rest is someplace else. I feel like I’ve been conned.”
A bank just robbed us. This is the first reverse bank robbery in the history of America.”
Zach Jacobs
Yotta customer
clear that its insurance fund doesn’t cover the failure of nonbanks like Synapse, and that in the event of such a firm’s failure, recovering funds through the courts wasn’t guaranteed.
Three months later, the FDIC proposed a new rule that would force banks to keep detailed records for customers of fintech apps, improving the chances that they qualify for coverage in a future calamity and cutting the risk that funds would go missing.
McWilliams, herself a former FDIC chair during the first Trump presidency, told the California judge handling the Synapse bankruptcy case last week she was “disheartened” that every financial regulator has decided not to help.
The FDIC and Federal Reserve declined to comment, and McWilliams didn’t respond to emails.
