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POSTED: July 12, 2024: Evolve Bank & Trust (the “Bank”) deeply understands and empathizes with the significant distress and frustration experienced by Synapse Brokerage, LLC (“Synapse Brokerage”) end users who have been unable to access funds. Our foremost priority in this situation is collaborating with the Synapse Trustee and all parties involved to facilitate the distribution of funds to the customers to whom they belong as soon as possible, while remaining in compliance with applicable law.
What Happened?
On April 22, 2024, Synapse Financial Technologies, Inc. (“Synapse”) filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court in the Central District of California. At the time of its bankruptcy filing, Synapse and the Bank were in the final stages of winding down a services agreement that expired by its terms in September 2023.
As part of the Synapse-Evolve wind-down, financial technology companies (“fintechs”) that partnered with Synapse to offer the Bank’s banking services to their end users were required to find a different banking services provider. Some fintechs decided to continue their partnership with Synapse and migrate their programs in Fall 2023 to a program offered by licensed broker-dealer Synapse Brokerage, a wholly owned subsidiary of Synapse.
Importantly, the Bank was not a part of the fintechs’ decision to migrate their programs to Synapse Brokerage and was not given an opportunity to provide input on the fintechs’ communications to end users. The Bank transferred end user balances from Evolve to the Synapse Brokerage program at Synapse’s instruction, in accordance with the Bank’s end user deposit agreement.
To avoid disruption to end users’ accounts during this transition period, the Bank agreed to temporarily provide certain payment processing services to Synapse Brokerage end users as Synapse sought new banking partners. In connection with these activities, the Bank holds Synapse Brokerage end user funds. The Bank did not enter into a program bank agreement with Synapse Brokerage and was not a program bank or partner financial institution of Synapse Brokerage.
The Issue With Synapse’s Ledgers
The Bank is committed to returning Synapse Brokerage end user funds held at Evolve in a safe and sound manner, based on accurate accounting. Unfortunately, the Bank’s investigation of ledgers provided to the Bank by Synapse has revealed numerous material irregularities and inconsistencies in Synapse Brokerage program balances. In multiple instances, the ledgers provided by Synapse show significant differences in Synapse Brokerage end user balances from one day to the next, without corresponding movement of funds. Some of these irregularities impact millions of dollars of end user funds, without explanation.
What the Bank is Doing to Help
On May 24th, federal bankruptcy Judge Martin Barash appointed former FDIC Chairman Jelena McWilliams as Independent Trustee of Synapse, replacing the Synapse management team that was responsible for the irregular ledgers provided to the Bank. Since her appointment, Ms. McWilliams has met regularly with the Bank and other Synapse ecosystem banks to facilitate the calculation and distribution of Synapse Brokerage end user account balances. The Bank continues to actively participate in this process and is committed to working collaboratively and transparently with the Trustee, other banks, and impacted fintechs to determine the most appropriate path forward.
To do our part in helping achieve a timely resolution, Evolve plans to use Synapse and Synapse Brokerage data made available through the bankruptcy process to calculate each Synapse Brokerage end user’s true balance. The Bank is expediting this work, but performing this reconciliation across millions of transactional records will take time. In the interest of transparency, and understanding the concerns of impacted end users, the Bank will provide periodic updates on its website regarding the reconciliation and any other relevant developments.
End users with specific questions can contact our Customer Care Center at 866.395.2754 or [email protected].
