When Catherine Bell put her money into Yotta, a fintech that promised savers a chance to win money just by saving more in its FDIC-insured accounts, it seemed like a no-brainer.
The Federal Deposit Insurance Corp. isan independent agency of the U.S. government that insures deposits in banks and savings institutions up to $250,000 per depositor.
She and tens of thousands of Americans parked their money at Yotta, receiving interest and chances to earn entries into drawings for prizes, including cash ranging from less than a dollar to millions, simply by saving. Generally, the more you save, the more chances you get to win.
The account worked for her and many others, until it didn’t.
“I was unfortunately unable to withdraw funds from this account when I attempted to do so in late 2024,” said Bell, who is close to retirement, adding that the FDIC was nowhere to be found.
FDIC declined “comment on open and operating institutions.”
What happened?
A fintech isn’t officially a bank, so technically, it isn’t FDIC insured. But it can say your money is FDIC insured by accepting your money and depositing it into a regular FDIC-insured bank. To do this, fintechs like Yotta, Juno and Copper that offer savings accounts, relied on tech company Synapse as a middleman to collect funds from various fintechs and deposit them into FDIC-insured EvolveBank & Trust.
Between 2019 and 2023, Synapse funneled over$1 billioninto Evolve but cracks emerged in 2022 and discussions about missing funds soon began. Mercury, another fintech using Synapse, began questioning Synapse’s trustworthiness and opted for a direct relationship with Evolve. Synapse, caught in a disagreement with Evolve and facing an end to its business relationship with that bank, funneled money to other institutions like Lineage Bank.
"Somefintechplatforms, including Yotta and Juno, elected to continue partnering with Synapse and migrated their programs to (Synapse subsidiary) Synapse Brokerage in autumn 2023, a decision Evolve was neither involved in nor consulted about," Evolve noted in a release. The fund transfers were directed by Synapse, Evolve said.
"Evolve continued to conduct certain payment processing services for Synapse Brokerage (users) as Synapse sought new banking partners to avoid disruption to... accounts during this transition period," Evolve said.
Synapse filed for bankruptcy in April 2024, leaving more than 100,000 customers unable to access their funds stored in Synapse-linked accounts at Evolve. Worse, $96 million in customer deposits remain unaccounted for across multiple banks, including Evolve and Lineage.
Finger-pointing, lawsuits and frozen customer accounts ensued.
The Federal Reserve issued an enforcement action against Evolve in June, citing deficiencies in its anti-money laundering, risk management and consumer compliance operations. The central bank alleged Evolve “fail[ed] to have in place an effective risk management framework” for its fintech partnerships.
The Fed noted, though, that "enforcement action against Evolve is independent of the bankruptcy proceedings regarding Synapse Financial Technologies Inc."
Lineage Bank has said approximately 97% of the funds it held have been returned to Synapse customers since Synapse declared bankruptcy. Evolve said previously that it also has been returning funds to customers
But many customers report only receiving pennies on the dollar. “For what it's worth, I did receive a PayPal payment from Evolve in the amount of $22.35 on November 5, 2024,” Bell said. That’s far short of her more than $100,000 deposited at Yotta.
In a court filing in April, TrusteeJelena McWilliams filed astatus reporton Synapse’s bankruptcy case, noting “it appears that a shortfall between the amount of funds held at some Partner Banks and funds expected to be held based on the Synapse ledger existed prior to Synapse’s bankruptcy. As a result, many end users still have not received their expected amount of funds and these amounts are subject to ongoing appeals processes and litigation.”
Evolve told USA TODAY, “at this time, we have no further comment, and we refer you toreconciliationbyevolve.com.”
Will customers ever get their money back?
It’s possible, but they’ll have to be patient and let processes play out. Some possible scenarios include:
◾The Department of Justice: If criminal activity occurred, and Evolve is found at fault, then the DOJ could force it to pay.
◾Lawsuits: Many have been filed, including a class-action lawsuit against Evolve and Lineage Bank and Yotta’s lawsuit against Evolve. Evolve filed to get Yotta’s suit dismissed. Again, such actions require legal filings, depositions, evidence gathering and likely, appeals of whichever way an initial verdict goes.
◾FDIC: If Evolve goes under, the FDIC would have the authority to get involved.
What are people’s chances of getting their money back?
The best chance for people to recover funds might be if Evolve goes bankrupt, some who are involved say. That would clear the way for the FDIC to step in.
“As a business owner myself, I hate to wish anything bad on another business, but there are instances such as these seem to be when bad players bring it upon themselves,” Bell said.
Evolve has already lost customers. In March, Mercury said it’s severing ties with Evolve and moving its customers to other partner banks.The step followed Dave Inc., another fintech, dropping Evolve as a banking partner.
It will also help when Synapse’s bankruptcy process is complete to see “how the bankruptcy plays out,” said Adam Moelis, Yottaco-founder and chief executive.
Once the bankruptcy process is complete, people may be able to focus on how to make depositors whole again.
The bankruptcy process may be close, possibly this summer, Moelis said.
In her status report, Williams laid the grounds for dismissal or conversion of Synapse’s bankruptcy case to Chapter 7 from Chapter 11. Chapter 7 is a liquidation of a business to pay creditors and is a faster process. Chapter 11 is a reorganization that requires many approvals, including from creditors, to continue operating.
What can consumers do?
While waiting for the process to play out, consumers can:
◾Join the class-action lawsuit.
◾Sign a petition on Change.org started by a Yotta user whose money was frozen.
◾Check out fightforourfunds.org, which offers consumers updates and links and actions they can take, including sending letters to state attorneys general and representatives.
◾Write Congress. Sens. Elizabeth Warren, D-Massachusetts, John Fetterman, D-Pennsylvania, Tammy Baldwin, D-Wisconsin, and Ron Wyden, D-Oregon, have been demanding answers from the Fed as to how its supervision may have failed Americans.
Here is their recent letter to Fed Governor Michelle Bowman.
◾Lobby the Fed. Fed Chair Jerome “Powell said twice publicly he would follow up," Moelis said. Yotta has hired lobbyists to help, "but it’s not SVB (Silicon Valley Bank) level people, tech people, impacted, so justice moves more slowly,” Moelis said. SVB customers consisted primarily of tech startups, software makers, and biotech firms. The bank invested in long-term bonds when interest rates were zero, but when interest rates rose, those long-term bond prices fell, cratering their investments and forcing the 16th largest bank into the second largest bank failure in the U.S.
Powell said last year the Fed supervises “the bank; we don't supervise Synapse, let alone the fintechs that feed into Synapse.” He added, "we're strongly encouraging Evolve to do whatever it can to help make money available to depositors. We also, as you may know, did an enforcement action before all this happened ... around these very risk management issues.”
◾Reddit boards also offer information and discussions with others in the same predicament.
However, this all turns out, “it’s painfully clear to me they (fintechs) shouldn’t be able to masquerade as being FDIC-backed when they’re not,” Bell said.
(This story was updated, clarifying the bankruptcy process and adding statements from Evolve.)
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.comand subscribe to our freeDaily Money newsletterfor personal finance tips and business news every Monday through Friday morning.
