Thousands of Americans are seeing their savings disappear

For fifteen years, former Texas teacher Kayla Morris poured every dollar she could save into a home for her growing family.

When she and her husband sold the house last year, they put the proceeds, $282,153.87, into what they considered a safe place: an account at the savings startup Yotta kept at a real bank.

Morris, like thousands of other customers, was caught up in the collapse of a behind-the-scenes fintech company called Synapse and will no longer have access to her account for six months from November. She hoped her money was still safe. Then she learned how much Evolve Bank & Trust, the lender where her money was, was deemed to be heldwas willing to return to her.

“We were told last Monday that Evolve would only pay us $500 of that $280,000,” Morris said during a court hearing last week, his voice shaking. “It’s just devastating.”

The crisis began in May when a dispute between Synapse and Evolve Bank over customer balances spilled over and the fintech intermediary disabled access to a key system used to process transactions. Synapse helped non-bank fintech startups like Yotta and Juno offer checking accounts and debit cards by connecting them with small lenders like Evolve.

In the immediate aftermath of Synapse’s bankruptcy, which occurred following an exodus of its fintech customers, a court-appointed trustee discovered that up to $96 million in customer funds were missing.

The mystery of where those funds come from Are has still not been resolved, despite six months of judicial mediation between the four banks involved. This is mainly because the legacy of Andreessen HorowitzBacked Synapse doesn’t have the money to hire an outside firm to do a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.

But what is now clear is that ordinary Americans like Morris will bear the brunt of that deficit and will receive little or nothing from savings accounts. which they believed were supported by the the full confidence and honor of the United States Government.

The losses demonstrate the risks of a system in which customers didn’t have direct relationships with banks, but instead relied on startups to hold their money, which shifted that responsibility to intermediaries like Synapse.

There are thousands of others like Morris. While there is not yet a full breakdown of those falling short, 13,725 customers at Yotta alone say they were offered a combined $11.8 million despite making $64.9 million in deposits, according to figures shared by Adam Moelis, co-founder founder and CEO of Yotta.

CNBC spoke to a dozen customers in this predicament, people who owe amounts ranging from $7,000 to more than $200,000.

From FedEx drivers to small business owners, from teachers to dentists, they described losing years of savings after turning to fintechs like Yotta because of the higher interest rates offered, because of innovative features or because they turned away from traditional banks.

A Yotta customer, Zach Jacobs, logged into Evolve’s website on November 4 and discovered he was only getting $128.68 back of the $94,468.92 he deposited – and he decided to take action.

The 37-year-old entrepreneur from Tampa, Florida, began organizing online with other victims, creating a board of volunteers for a group called Fight for our funds. He hopes they will get the attention of the press and politicians.

So far, 3,454 people have signed up and say they have lost a total of $30.4 million.

“When you tell people about this, you think, ‘There’s no way this is happening,’” Jacobs said. ‘A bank just robbed us. This is the first reverse bank robbery in American history.”

Andrew Meloan, a chemical engineer from Chicago, said he had hoped to see the $200,000 he deposited with Yotta. Early this month, he received an unexpected PayPal transfer from Evolve for $5.

“When I signed up, they gave me an Evolve routing and account number,” Meloan said. “Now they say they only have five dollars of my money, and the rest is somewhere else. I feel like I’ve been scammed.’

Unlike meme stocks or crypto bets, where the user obviously assumes some risk, most customers considered funds held by the Federal Deposit Insurance Corp. supported accounts as the safest place to keep their money. People relied on Synapse accounts for everyday expenses like buying groceries and paying rent, or to save for major life events like home purchases or surgeries.

Several people CNBC interviewed said signing up seemed like a good bet since Yotta and other fintechs advertised that deposits through Evolve were FDIC insured.

“We were assured that this was just a savings account,” Morris said during last week’s hearing. “We’re not risk takers, we’re not gamblers.”

Abandoned by US regulators, who have so far refused to take action, they have few clear options for getting their money back.

In June, the FDIC passed it clearly that its insurance fund does not cover the bankruptcy of non-banks like Synapse, and that in the event of the bankruptcy of such a company, recovery of money through the courts was not guaranteed.

Three months later, the FDIC proposed a new rule that would force banks to keep detailed records for customers of fintech apps, increasing the likelihood they qualify for coverage in a future disaster and reducing the risk of losing money go.

McWilliams, herself a former FDIC chair during Trump’s first presidency, told the California judge hearing the Synapse bankruptcy case last week that she was “disheartened” that every financial regulator has decided not to help.

The FDIC and Federal Reserve declined to comment and McWilliams did not respond to emails.

It hadn’t always looked so dire. Early in the proceedings, McWilliams suggested adjudication Martin Baras that customers get partial payment, essentially spreading the pain to everyone.

But that would have required more coordination between Evolve and the other lenders holding customers’ money than what ultimately happened.

As the hearings continued, the three other institutions, AMG National Trust, Lineage Bank and American Bank, began paying out the money they had, while Evolve took months to carry out what it initially said would be a comprehensive reconciliation are.

Evolving around time completed After its efforts in October, it said it was only able to identify the user funds it had in its possession, and not the location of the missing funds. That’s at least partly due to “very large bulk transfers” of funds without identification of who owned the money, an attorney for Evolve testified last week.

As a result, the bankruptcy process has produced relative winners and losers.

Some end users recently got all their money back, while others, like Indiana FedEx driver Natasha Craft, received nothing, she told CNBC.

As of Nov. 12, the four banks have released $193 million to customers, or more than 85% of what they held earlier this year.

The November 13 hearing was the only public place where victims could report their distress; Dozens of victims lined up hoping to testify about receiving a small portion of what they were owed. The event lasted over three hours.

“You can’t imagine the panic when it said I got 81 cents,” said Andreatte Caliguire, who says she still owes $22,000. “I have no money, I have no way forward, I have nothing.”

Evolve said “the vast majority” of funds held for Yotta and other customers were moved to other banks in October and November 2023 at Synapse’s direction, an Evolve spokesperson said.

“Where that end-user money went next is an important question, but unfortunately Evolve cannot answer it with the data it now has,” the spokesperson said.

Yotta says Evolve has not provided fintech companies and the trustee with information about how it determined the payouts, “despite the court’s acknowledgment that a shortfall existed at Evolve prior to October 2023,” according to a spokesperson for the startup, who noted that several executives recently left the bank. “We hope the regulators notice this and take action.”

In statements Evolve, released ahead of this month’s hearing, said other banks declined to join efforts to create a master ledger, while AMG and Lineage said Evolve’s implication that they had the missing funds was “irresponsible and unfair”.

As banks and other parties level accusations at each other and lawsuits pile up, including ongoing class action efforts, the likelihood of cooperation is rapidly diminishing, Barash said last week.

“As time passes, my impression is that unless the banks involved can voluntarily settle this, it may not be resolved,” Barash said. “There’s nothing optimistic about what I’m telling you.”