Synapse Bankruptcy Update | Evolve Bank & Trust

Updated September 13, 2024

Evolve Bank & Trust (“Evolve” or “Bank”) is providing this update to the Trustee and parties in interest documenting the Bank’s progress in performing a reconciliation that, once completed, will enable Evolve to distribute end user funds in its possession, in compliance with applicable law.

I. Background

As explained in prior updates to the Trustee and the Court, Evolve is holding approximately $46 million in funds belonging to end users of Synapse Brokerage LLC (“Synapse Brokerage”), a subsidiary of the bankrupt entity Synapse Financial Technologies, Inc. (“Synapse”). These end user funds are held by Evolve in connection with the Bank’s payment processing activities for Synapse Brokerage end users following their fintech platforms’ migration from Evolve to Synapse Brokerage in Fall 2023. The Bank additionally holds approximately $35.3 million in reserve funds that it will distribute to end users if the reconciliation determines that such distribution is appropriate.

As detailed in prior updates, Synapse had a contractual obligation to maintain, and to provide to Evolve, a complete and accurate ledger. However, the Bank has identified significant irregularities in Synapse’s ledgers that indicate the account balances set forth therein are materially inaccurate, and cannot be used as the basis for distributing funds to end users. Therefore, Evolve determined that a reconciliation was necessary to determine (1) which Synapse Brokerage end users have funds at Evolve, and (2) for those Synapse Brokerage end users with funds at Evolve, how much is owed to each end user.

The Bank has engaged Ankura Consulting Group, LLC (“Ankura”), a third-party firm with strong expertise in complex accounting and reconciliation matters, to lead the reconciliation on the Bank’s behalf. Ankura’s work has been underway for weeks, and a status report containing an update on recent progress is below.

II. Reconciliation Status Report

Ankura continues to make progress toward completing a Reconciliation Plan that will take account of Synapse Brokerage end-user transactions in and out of Evolve and allow the Bank to determine (1) which Synapse Brokerage end users have funds at Evolve, and (2) the amount of their funds at Evolve.

Per the Bank’s prior updates, the essential components of this Reconciliation Plan are:

Collection of Synapse’s account and transaction data;
Analysis of this data, along with Evolve’s own data, to track the flow of funds into and out of Synapse Brokerage end users’ accounts; and
Calculation of the end-users’ actual balances at Evolve.

Ankura has completed the transfer, restoration, and validation of the databases necessary to perform the reconciliation. As noted in prior updates, this process involved working with the Trustee and the Trustee’s service provider to extract, copy, transfer to Ankura, and restore more than 100 databases maintained by Synapse, comprising nearly 10 terabytes of data. Ankura has separately obtained access to millions of Evolve’s transactional records.

With record collection and database restoration completed, Ankura is currently diligently analyzing the contents of the Synapse databases and Evolve’s records to reconcile account-by-account, transaction-by-transaction activity with reported account balances over time. Consistent with prior updates, the anticipated timeline for completing the reconciliation, starting from the collection of the necessary data (substantially complete as of August 23, 2024), is approximately eight weeks, subject to possible contingencies. This means that we expect the reconciliation to be completed by October 18, 2024.

Updated: August 30, 2024

Evolve Bank & Trust (“Evolve” or “Bank”) is providing this update to document the Bank’s recent progress in performing a reconciliation that, once completed, will enable Evolve to distribute end user funds in its possession, in compliance with applicable law.

Evolve’s Priority is the Accurate Distribution of End User Funds

Every day, Evolve hears from Synapse Brokerage LLC (“Synapse Brokerage”) end users seeking access to their funds. Their stories – shared with the Bank’s customer service representatives, social media, government agencies, and the Court – speak to end users’ significant distress and frustration with the situation that has unfolded since Synapse Financial Technologies, Inc. (“Synapse”) filed for Chapter 11 bankruptcy on April 22nd. Evolve understands the urgency to distribute end user funds held by the Bank, and is working as quickly as possible, using internal and third-party resources and expertise, to calculate accurate balances and distribute the funds it holds to the correct end users.

Update on Ledger Reconciliation and Release of End User Funds

Importantly, Evolve was not a program bank of Synapse Brokerage. Rather, Evolve’s role as payment processor following the Synapse Brokerage migration was intended to facilitate an orderly transition of end users away from Evolve as the relationship between Evolve and Synapse wound down beginning in September 2023. Following migration, Synapse Brokerage end users’ accounts at Evolve had a balance of $0, as their funds were transferred to AMG National Trust, a banking services provider to Synapse Brokerage, at Synapse’s instruction on end users’ behalf.

Evolve’s limited role with respect to Synapse Brokerage end users was confirmed by Yotta’s CEO on October 27, 2023, following the migration of Yotta end users from Evolve to the Synapse Brokerage cash management program: (Click Here to view Yotta End User Notification referenced in below email.)

The Need for Reconciliation

Synapse had a contractual obligation to maintain, and to provide to Evolve, a complete and accurate ledger. However, the Bank has identified significant irregularities in Synapse’s ledgers that indicate the account balances set forth therein are materially inaccurate, and cannot be used as the basis for distributing funds to end users. For example:

The April 29, 2024 ledger provided to Evolve by Synapse showed, for one Synapse Brokerage platform, an increase of approximately $85 million in end user funds at Evolve in one day, when during that period Evolve received only $2,686,233 of incoming end user funds.
The April 30, 2024 ledger provided to Evolve by Synapse also showed, for another Synapse Brokerage platform, a one-day decrease of more than $21 million in end user funds – but Synapse only instructed Evolve to send (and it only sent) $814,132 in outgoing end user funds during this period.

Evolve notes that based on the information provided in the Appendices to prior status reports submitted by the Trustee, it is not the only Synapse ecosystem bank that has observed material errors, contradictions, and irregularities in Synapse’s ledgers. As Evolve has previously stated, without an accurate ledger, the Bank does not have the two essential pieces of information it needs to distribute end user funds in its possession:

Which Synapse Brokerage end users have funds at Evolve?
For those Synapse Brokerage end users with funds at Evolve, how much does the Bank owe to each end user?
Evolve is confident that the reconciliation will provide both pieces of information, and will enable the Bank to accurately distribute end user funds to the appropriate Synapse Brokerage end users, in the correct amounts. The Bank has engaged Ankura Consulting Group, LLC (“Ankura”), a third-party firm with strong expertise in complex accounting and reconciliation matters, to lead the reconciliation on the Bank’s behalf. Ankura’s work has been underway for weeks, and a status report of Ankura’s recent progress on the reconciliation is provided below.

Reconciliation Status Report

Ankura was retained on July 29, 2024 to assist the Bank with its Data Collection and Reconciliation Plan and initiated its work on July 30, 2024. As detailed in the Bank’s prior update, the Reconciliation Plan will take account of Synapse Brokerage end user transactions in and out of Evolve and allow the Bank to determine (1)
which Synapse Brokerage end users have funds at Evolve, and (2) the amount of their funds at Evolve.
Per the Bank’s prior update, the essential components of this Reconciliation Plan are:

Collection of Synapse’s account and transaction data;
Analysis of this data, along with Evolve’s own data, to track the flow of funds into and out of Synapse Brokerage end users’ accounts; and
Calculation of the end users’ actual balances at Evolve.

Per the Bank’s prior update, this Reconciliation Plan is necessary because the ledgers that Synapse provided to Evolve are incorrect. Ankura has made substantial progress to date. In the four weeks since being retained, Ankura’s work has included but not been limited to:

Gathering information from Evolve and its personnel about its relationship with Synapse and transactions in support of that relationship;
Identifying the dozens of Evolve accounts through which Synapse-related transactions were conducted (distinct from end user accounts that were maintained by Synapse);
Obtaining access to and analyzing millions of Evolve’s transactional records relating to activity in these accounts for the time period at issue (ongoing);
Developing analytical models to support the Reconciliation Plan (ongoing);
Working with Evolve’s records to reconcile account-by-account, transaction-bytransaction activity with reported account balances over time (ongoing);
Working extensively with representatives of the Trustee to extract, copy, and transfer to Ankura dozens of databases (approximately 10 terabytes of data) maintained by Synapse; and
Restoring those databases maintained by Synapse in Ankura’s environment to establish continuous and unrestricted access to Synapse data for the purpose of the Reconciliation.

As noted in the Bank’s Prior updates, the Reconciliation Plan involves substantial complexities. As one example:

Ankura has worked closely with representatives of the Trustee, as noted above, to gain access to dozens of databases maintained by Synapse, which include the ledger activity and transactional records relating to end users’ accounts (distinct from the Synapse-related omnibus accounts maintained by Evolve).
Ankura began working with the Trustee’s representatives on the evening of August 6, 2024 to plan and execute the extraction, copying, and transfer to Ankura of these databases, which represent one component of the Reconciliation Plan and taken together comprise approximately 10 terabytes of data.
Ankura and the Trustee’s service provider initiated the complex process of extracting, copying, and transferring these dozens of databases on August 7, 2024 and following a nearly continuous effort completed the full transfer in the evening of Friday, August 23, 2024.
The Ankura team completed the restoration of these dozens of databases in Ankura’ environment and is coordinating with the Trustee’s service provider to validate that the databases were successfully transferred (i.e., what was received aligns with the original). The successful receipt and restoration of these databases enables Ankura to undertake its review and analysis of the relevant Synapse records.
As noted previously, there do not appear to be any system documentation, “data dictionaries,” user guides, or similar materials maintained by Synapse that might
provide some type of roadmap for these dozens of databases. This may make the analysis more complicated and time-consuming.

Consistent with earlier communications, the anticipated timeline from the collection of the necessary data (substantially complete as of August 23, 2024) is approximately eight weeks, subject to possible contingencies.

August 15, 2024

Reconciliation Progress

As explained in our July 31st update, a reconciliation is necessary because Synapse – the technology provider at the center of the Synapse ecosystem – provided inaccurate ledgers that reflected end user balances at Evolve that do not align with the actual flow of funds into and out of the Bank. Without an accurate ledger, Evolve does not have the two essential pieces of information it needs to distribute funds:

Which Synapse Brokerage end users have funds at Evolve?
For those Synapse Brokerage end users with funds at Evolve, how much does the Bank owe to each end user?

On May 24th, former FDIC Chairman Jelena McWilliams was appointed as Trustee of Synapse, replacing the Synapse management team responsible for the inaccurate ledgers provided to the Bank. The appointment of a Trustee has allowed Evolve and other Synapse ecosystem banks access to crucial Synapse information that previously had either been cut off (e.g., statements available from the Synapse Dashboard) or entirely unavailable (e.g., the Synapse MongoDB database), enabling Evolve to move forward with our reconciliation and resolution efforts.

As previously disclosed, Evolve has engaged Ankura Consulting Group, a third-party firm with strong expertise in complex accounting and reconciliation matters, to lead this reconciliation. An update from Ankura is provided below. As noted in Ankura’s report, data 2 collection, which has been a monumental undertaking given the size of Synapse’s MongoDB database, is nearing completion, and analysis of the data already collected is underway.

For example, since Evolve’s last update, the Bank has collected, identified, and begun analyzing the Synapse database showing the migration of approximately $650 million in Synapse Brokerage end users’ funds from Evolve to the Synapse Brokerage cash management program in Fall 2023.* This information is critical to tracking the flow of end user funds across the Synapse ecosystem, and to calculating the end user-specific balances at Evolve as a result of the Bank’s payment processing activities following migration.** Note that following the migration, Synapse Brokerage end users’ accounts at Evolve had a balance of $0, as their funds were transferred to AMG National Trust, a banking services provider to Synapse Brokerage, at Synapse’s instruction on end users’ behalf.

Evolve is committed to provide updates to the Court and the public as the reconciliation progresses. The update from Ankura below provides additional information about the current status of this important work.

*Evolve had no role in decisions made by Synapse’s fintech platforms to migrate from the Evolve program to the Synapse Brokerage cash management program.

**As noted in prior updates, Evolve was not a program bank of Synapse Brokerage, and is holding funds as a result of payment processing activities that the Bank continued to perform for Synapse Brokerage end users following their migration to the Synapse Brokerage cash management program.

* * *

Ankura Consulting Group Status Report for Synapse Trustee

August 14, 2024

Ankura was retained on July 29th to assist the Bank with its Data Collection and Reconciliation Plan and initiated its work on July 30th.

As detailed in the Bank’s most recent update, the Reconciliation Plan will take account of Synapse Brokerage end-user transactions in and out of Evolve and allow the Bank to determine (1) which Synapse Brokerage end users have funds at Evolve, and (2) the amount of their funds at Evolve.

Per the Bank’s prior update, the essential components of this Reconciliation Plan are:

Collection of Synapse’s account and transaction data;
Analysis of this data, along with Evolve’s own data, to track the flow of funds into and out of Synapse Brokerage end users’ accounts; and
Calculation of the end-users’ actual balances at Evolve.

Per the Bank’s most recent update, this Reconciliation Plan is necessary because the ledgers that Synapse provided to Evolve are incorrect.

Ankura has made rapid progress to date. In the two weeks since being retained, Ankura’s work has included but not been limited to:

Gathering information from Evolve and its personnel about its relationship with Synapse and transactions in support of that relationship;
Identifying the dozens of Evolve accounts through which Synapse-related transactions were conducted (distinct from end-user accounts that were maintained by Synapse);
Obtaining access to and analyzing millions of Evolve’s transactional records relating to activity in these accounts for the time period at issue (ongoing);
Developing analytical models to support the Reconciliation Plan (ongoing); and
Working extensively with a service provider of the Trustee to gain access to dozens of databases maintained by Synapse (ongoing).

As noted in the Bank’s prior updates, the Reconciliation Plan involves substantial complexities. As one example:

Ankura has been working closely with a service provider of the Trustee, as noted above, to gain access to dozens of databases managed by Synapse, which include the ledger activity and transactional records relating to end-users’ accounts (distinct from the Synapse-related omnibus accounts maintained by Evolve).
Pursuant to a negotiated agreement between Evolve and the Trustee, Ankura began working with the Trustee’s service provider on the evening of August 6th to plan and execute the transfer to Ankura of copies of these databases, which represent one component of the Reconciliation Plan and taken together comprise approximately 10 terabytes of Synapse data.
Moreover, Ankura understands no pre-existing Synapse system documentation or “data dictionaries” are available for these databases, which is somewhat akin to not having a table of contents for a set of encyclopedias;
Ankura and the Trustee’s servicer provider have been copying these dozens of databases on a virtually continuous basis since August 7 and as of noon Eastern on August 14, they have successfully copied and transferred 22 of 24 “clusters” of data.

Notwithstanding the complexities involved, Ankura is fully committed to assisting Evolve in expediting the correct disbursement of funds held by Evolve to end users, and will make every effort to do so. As communicated earlier, the anticipated timeline based on the collection of the necessary data is approximately eight weeks, and Evolve will update that as appropriate.

Updated: August 2, 2024

Why is Reconciliation Necessary?

Evolve continues to receive communications from end users and other parties who are unable to access their funds following the bankruptcy of Synapse Financial Technologies, Inc. (“Synapse”). The vast majority of these individuals are customers of Synapse Brokerage LLC (“Synapse Brokerage”), a wholly-owned broker-dealer subsidiary of Synapse. Many Synapse Brokerage customers feel that no one is able to give them a clear understanding of where their funds are, and why it is taking so long for them to be released. They are understandably frustrated and worried about when they will receive distributions from Evolve or other entities in the Synapse ecosystem.

Evolve was not a program bank of Synapse Brokerage. Evolve is holding approximately $46 million in accounts created so that the Bank could continue to perform payment processing activities for Synapse Brokerage end users following their fintech platforms’ migration from Evolve to Synapse Brokerage in Fall 2023. In order to distribute these funds to Synapse Brokerage end users, the Bank needs to know the following two essential pieces of information:

Which Synapse Brokerage end users have funds at Evolve?
For those Synapse Brokerage end users with funds at Evolve, how much does the Bank owe to each end user?

Synapse communicated this information to Evolve in a final ledger on May 17, 2024. However, the ledgers that Synapse provided to Evolve are incorrect. In reviewing the ledgers, Evolve has observed significant differences in Synapse Brokerage end users’ balances from one day to the next, without a corresponding movement of funds. Evolve has provided examples of these irregularities in prior filings with the Court.

Without an accurate ledger, Evolve does not have either of the two essential pieces of information it needs to distribute funds. In order to calculate these pieces of information, it is necessary to perform a process called reconciliation. Through this process, which will take account of Synapse Brokerage end user transactions in and out of Evolve, the Bank will be able to determine (1) which Synapse Brokerage end users have funds at Evolve, and (2) the amount of their funds at Evolve. Evolve will then be able to distribute funds to the appropriate Synapse Brokerage end users, in the correct amount.

Evolve is Performing Reconciliation Right Now

As noted above, Synapse failed to accurately reconcile Synapse Brokerage end user transactions and accounts at Evolve. As a result, end users and Synapse ecosystem banks find themselves in the regrettable situation of not knowing who is owed what.

This is why Evolve has developed, and is in the process of executing, a Reconciliation Plan. The essential components of this Plan are:

Collection of Synapse’s account and transaction data;

Thorough analysis of this data, along with Evolve’s own data, to track the flow of funds into and out of Synapse Brokerage end users’ accounts; and

Calculation of the funds actually owed by Evolve to end users, which will support the distribution of funds at Evolve to the appropriate end users.

Implementation of the Reconciliation Plan is underway, with staff at Evolve working around the clock to collect data, write code to analyze data, and track the movement of end user funds down to the individual transaction level.

In addition, since our last status update, Evolve has engaged Ankura Consulting Group, a third-party firm with strong expertise in accounting and reconciliation, to assist with executing the Reconciliation Plan. Evolve is also continuing to work with Synapse Brokerage platforms to determine whether they have their own data that should be considered in the reconciliation. Throughout this process, the Evolve team is providing updates to the Trustee to ensure transparency and cooperation, and will continue to provide summaries of our progress to the Court and the public as our work continues.