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Synapse user deposits frozen amid bankruptcy mess

May 14, 2024
Animated illustration of two hands playing tug of war with a file.

Illustration: Shoshana Gordon/Axios

Evolve Bank & Trust froze end-user deposits, alleging Synapse cut its access to a dashboard that helps it monitor fraud among the companies' shared customers, according to a new court filing.

Why it matters: The Synapse bankruptcy is directly affecting consumers and their ability to access funds — an extremely serious issue that opens the case up to another world of lawsuits and regulatory scrutiny.

What's inside: In the filing with a California bankruptcy court yesterday, Evolve alleges that it lost access to the dashboard on Saturday and froze Synapse customers' accounts that same day.

  • It also froze demand deposit accounts totaling $5.9 million and stopped debit or credit card programs sponsored by Evolve, as well as pausing payments processing services for those customers.
  • "Evolve seeks emergency relief from the Court because it has been denied access to an essential system owned and maintained by Debtor and has been forced to freeze End User accounts as a result," an Evolve representative wrote in the filing.
  • Alternatively, it seeks to close all demand deposit accounts at Evolve associated with Synapse.

Between the lines: This all comes after TabaPay walked away from a deal to buy Synapse for around $9.7 million.

Zooming in: In recent months, many fintechs have cut ties with Synapse, though not all. Juno — a cash-to-crypto company — had to pause crypto buying and selling and is experiencing "interruptions" in ACH transfers, wire transfers and card transactions.

  • Yotta has told consumers that it is "experiencing difficulties with payment processing on out debit and credit cards due to an outage at our processor, SynapseFi."

What they're saying: "Evolve's dashboard access has been restored," Synapse CEO Sankaet Pathak said in a written message to Axios. "Their narrative is that they cut off access because they lost dashboard access, but they had stopped processing payments way before then."

  • "There were no changes in services offered by Evolve prior to Synapse blindsiding Evolve by unilaterally revoking our access to their dashboard," an Evolve spokesperson told Axios after publication. "As a critical service provider, Synapse's system must be available to protect end users."

Update: This story has been updated to include the response from Evolve's spokesperson.

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