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In bankruptcy proceedings last Friday, lawyers for banking-as-a-service provider Synapse Financial Technologies said the corporate’s remaining employees were working feverishly to revive access to funds locked in frozen accounts for 1000’s of fintech customers and to shut down operations. “The debtor has moved at breakneck speed to shut down its own operations and minimize disruption to others,” Synapse’s bankruptcy attorney Ron Bender of Levene, Neale, Bender, Yoo & Golubchik in Los Angeles told U.S. Bankruptcy Judge Martin R. Barash of the Central District of California.
But yesterday, a compliance officer on the startup sent an email to Barash that paints a unique picture of what was (and wasn’t) happening behind the scenes.
“I wanted to bring to your attention that Synapse has made no attempt to contact any of our platforms (our fintech clients) or their end users,” the e-mail said. “As far as I understand, the additional time you granted Synapse was to give us time to initiate an orderly resolution process. To date, there is no process and, as I said, no communication other than what has been publicly disclosed.” Synapse didn’t reply to Forbes’ Request for comments.
Last Friday, Barash postponed until next Friday a call on a motion filed by the United States Trustee to convert Synapse’s Chapter 11 bankruptcy filing, which leaves management on top of things, right into a Chapter 7 liquidation, with the trustee in charge. At a minimum, the trustee had argued, Synapse’s management needs to be fired for “grossly mismanaging the estate.” But Synapse’s lawyers responded that current management was best placed to handle the situation and minimize disruption.
However, the worker’s email suggested that Synapse management was not acting as needed. “If immediate action is not taken when the deadline passes on Friday, all Synapse platforms and their end users will be left out in the cold,” it warned.
The creator of this email tells Forbes that Synapse’s fintech customers were still contacting the corporate with routine questions yesterday. The person says that despite the general public bankruptcy proceedings, those customers appeared unaware of the likely impending transition to liquidation proceedings and haven’t received any instructions from Synapse about what to do if the case is converted. Synapse had 100 fintech customers with 10 million end users as of January 2024, in response to a court filing from the corporate.
However, a minimum of one Synapse customer, YieldStreet, says Synapse is working hard to revive access to customers. YieldStreet, amongst other customers, has also pledged to offer Synapse with funds in order that employees can proceed to be paid for one more week.
Last month, payments company TabaPay announced plans to accumulate Synapse’s operating assets, however the deal fell through attributable to unresolved issues between Synapse and one in every of its banking partners, Arkansas-based Evolve Bank & Trust. A dispute between the 2 can be accountable for tens of 1000’s of fintech customers being unable to make use of their accounts since May 11.
Today, 1000’s of fintech customers, including Yotta Technologies, Juno Finance and Copper Banking, are unable to access their deposit accounts. Customers who’ve direct deposits arrange with these accounts are unable to transfer their incoming paycheck to a functional account, in response 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,” said Juno Finances Customer Support Page it says. “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 responded that the direct transfer was successfully transferred to their Juno Finance account. They advised the user to contact their bank to resolve the difficulty.
