The Consumer Financial Protection Bureau has been investigating Synapse Technology's business practices and is preparing to file a complaint against Synapse alleging unfair acts or practices, according to a supplemental declaration filed by Jelena McWilliams, Synapse's bankruptcy trustee, in the central California bankruptcy court on Thursday. McWilliams and her team have been working with the CFPB to provide data and records for the investigation, the document stated.
"Specifically, the Bureau plans to allege that Synapse failed to maintain adequate records of the location of consumers' funds and failed to ensure those records matched the records maintained by the partner banks, causing consumers to lose access to their funds, an estimated $60-90 million of which still have not been recovered," McWilliams' filing states.
Synapse was a San Francisco banking-as-a-service middleware provider that maintained ledgers for banks and their fintech partners. When Synapse went bankrupt in April 2024, the bankruptcy trustee discovered a shortfall of $60 million to $90 million – money that should have been given back to the consumers who used fintech apps like Yotta, Dave and Juno.
McWilliams, a former FDIC chair who now heads the financial institutions group at law firm Cravath, Swaine & Moore, and the CFPB are in talks to settle the complaint with a "CFPB Stipulated Judgment" that would include nominal monetary penalties. This judgment and penalty would then allow the CFPB to
"This is an arranged lawsuit to give the CFPB a basis for using its big fund to pay off victims at Yotta," Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia Business and Law Schools, told American Banker. "This would be a better outcome for claimants than continuing to search for someone to take the blame on their own. Without this, they would likely get nothing from the bankruptcy process, as there is no money left in Synapse to finance further efforts at recovery."
Baker would still like someone to trace where the money actually went and determine the responsibility of other parties, including Synapse's lead banking partner, Evolve Bank & Trust, he said. Evolve did not respond to a request for comment.
"But the claimants will be made whole, which is the most important thing," Baker said.
McWilliams' legal filing also said Evolve Bank has been copying data from Synapse's Amazon Web Services environment. A complete copy of the AWS data is now in an Evolve-controlled AWS environment, and Evolve will continue to maintain this data after the case concludes.
The filing was in support of a motion to convert Synapse's Chapter 11 case to Chapter 7, to allow the resolution to continue. The hearing for the motion is scheduled for Monday, Aug. 11 at 1:30 p.m. Pacific Time.
