In bankruptcy court proceedings last Friday, lawyers for banking-as-a-service provider Synapse Financial Technologies said the company’s remaining employees were working feverishly to restore access for thousands of fintech customers to money locked in frozen accounts and to wind down operations. “It’s been kind of a whirlwind effort by the debtor to try to wind down its own operations and minimize disruption to others,’’ Synapse bankruptcy lawyer Ron Bender of Levene, Neale, Bender, Yoo & Golubchik in Los Angeles told U.S. Bankruptcy Court Judge Martin R. Barash, of the Central District of California.
But yesterday, a compliance officer at the startup sent an email to Barash that paints a different picture of what has (and hasn’t) been happening behind the scenes.
“I wanted to bring to your attention that Synapse has made no attempt to reach out to any of our platforms (our Fintech customers) or their end-users,” the email reads. “From my understanding, the additional time you granted Synapse to operate was to give us time to put into place an orderly wind down process. To date, there is no process in place and as I indicated already, no communication other than what has been reported publicly.” Synapse did not reply to Forbes’ request for comment.
Last Friday, Barash delayed until this coming Friday ruling on a request from the United States Trustee that Synapse’s Chapter 11 filing, which leaves management in control, be converted to a Chapter 7 liquidation, with the trustee running things. At the least, the trustee had argued, Synapse’s management should be removed because it had “grossly mismanaged the estate.” But Synapse lawyers responded that current management was in the best position to navigate the situation and minimize disruption.
The employee email suggested, however, that Synapse management wasn’t acting as needed. “If something isn’t done and pretty much immediately, when the deadline hits on Friday, any Synapse platform and their end-users are going to be left high and dry,’’ it warned.
The author of that email tells Forbes that, as recently as yesterday, Synapse’s fintech clients were contacting the company with routine questions. The person says that, despite the public bankruptcy proceedings, these customers didn’t seem aware of the likely imminent move to liquidation proceedings and haven’t received any instructions from Synapse on what to do if the case is converted. Synapse had 100 fintech customers, with 10 million end users, as of January 2024, according to a court filing from the company.
However at least one Synapse customer, YieldStreet, says that Synapse is working hard to restore access to customers. YieldStreet, among other clients, has also pledged to provide Synapse with funding to continue paying employees for another week.
Last month, payment processor TabaPay announced plans to acquire Synapse’s operating assets, but the deal fell through due to unresolved issues between Synapse and one of its bank partners, Arkansas-based Evolve Bank & Trust. A dispute between the two is also responsible for locking tens of thousands of fintech customers out of their accounts since May 11th.
Today, thousands of fintech customers including those of Yotta Technologies, Juno Finance and Copper Banking are locked out of their deposit accounts. Customers who have set up direct deposit with these accounts are unable to switch their incoming paycheck to a functional account, according to one affected consumer who says he has $20,000 in his Juno Finance account.
“Direct deposits are also affected during the temporary service outage,” Juno Finance’s customer support page reads. “If you are expecting direct deposits from your employer, they will be returned to the source account. We recommend contacting your employer to redirect the direct deposits to your external bank account.”
However, when the Juno Finance customer contacted their payroll provider, Rippling, they replied that the direct deposit was successfully sent to their Juno Finance account. They advised the user to reach out to their bank to resolve the issue.
