Evolve Bank has gained a temporary win in the legal battles among the companies affected by Synapse's bankruptcy, which left hundreds of thousands of fintech customers without access to their money.
Trina Thompson, a Northern California federal district court judge, dismissed Yotta Technologies' lawsuit against Evolve on May 15, ordering Yotta to provide more details in an amended complaint.
"We are pleased that the judge granted our motion to dismiss," an Evolve spokesman said. "We have maintained from the beginning that the claims lacked merit, and we are gratified that the Court agreed."
Savings app provider Yotta has until June 2 to file the amended pleading.
"We intend to file an amended complaint by the deadline and remain committed to pursuing this case," Yotta CEO Adam Moelis told American Banker. "In addition, we will continue to do everything we can to help depositors get their funds back in full."
Synapse's role in fintech partnerships and the collapse
San Francisco-based Synapse was a banking-as-a-service middleware provider. It connected fintechs with banks for the services only a chartered bank can provide, such as FDIC-insured deposits, and maintained ledgers for both parties. It partnered with Evolve Bank, Lineage Bank, AMG National Trust and American Bank.
When Synapse went bankrupt, all four banks returned some fintech customer funds, but the bankruptcy trustee said somewhere between $65 million and $95 million of customer funds were missing. The ledgers maintained by Synapse and the banks did not line up, and each party is convinced its records are accurate. Evolve Bank has accused Synapse of
Key allegations in Yotta's complaint against Evolve
Yotta's lawsuit, which was filed in September 2023, alleged Evolve "utterly failed in its most basic duty to its customers, misappropriating and/or misplacing tens of millions of dollars in customer funds."
According to the complaint, Evolve improperly deducted $25 million account analysis charges and payment processing fees from the "for benefit of" accounts Synapse maintained for its fintech clients multiple times. (According to Evolve, these charges were part of its contract with Synapse; Synapse representatives say the charges were never agreed upon.)
Yotta's lawsuit also claimed that Evolve botched its migration of another fintech, Mercury, from Synapse's software to Evolve's system, and accidentally gave Mercury or its customers almost $50 million more than they were entitled to. Mercury has denied that it received any extra money in this migration.
In Evolve's
"Yotta's suit is a transparent attempt to place Synapse's liability on Evolve because Synapse is shielded from suit pending bankruptcy," the motion stated. "That problem — that it is Synapse's conduct and not Evolve's that is at issue — infects every aspect of Yotta's claims."
Evolve didn't deny that it charged the fees Yotta cited, nor that it may have deducted them from the wrong account.
Why the judge dismissed Yotta's lawsuit against Evolve
Thompson said Yotta did not adequately allege Synapse's involvement in the case, and she ordered Yotta to specify Synapse's conduct in the amended complaint. The judge also said the complaint must detail the who, what, when, where and how of the alleged fraud, under Rule 9B of the Federal Rules of Civil Procedure.
Creating the amended complaint will be a challenge for Yotta, said Todd Baker, a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia University, and the managing principal of Broadmoor Consulting.
"It is a chicken-and-egg problem, because without discovery Yotta is in a tough situation proving the level of culpable actions by Evolve personnel necessary for its claims under law," Baker said.
This case is one of numerous
