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The collapse of a fintech business that stole $90 million in life savings has left thousands of common investors devastated after being left with just pennies following the company’s bankruptcy earlier this year.
The fintech intermediary known as Synapse went bankrupt in May, leaving over 100,000 Americans out of a total of $90 million. This has led to the initiation of a class action lawsuit against the company.
One victim of the scam, Kayla Morris, lost a staggering $282,153.87 that she and her husband had saved up from selling their property in hopes of purchasing a larger home for their family. However, after the bankruptcy of Synapse, they were left with only $500, causing immense financial distress for the couple.
Another victim, Zach Jacobs, who had $94,468.92 in the fintech app Yotta, was left with less than $130 as a result of the company’s collapse.
Many of the victims, including Morris and Jacobs, were using the gamified personal finance platforms Yotta and Juno, which relied on Synapse to provide banking services without the need for banking licenses.
Synapse, which was founded in 2014 with backing from Andreessen Horowitz, aimed to help fintech companies like Juno and Yotta operate as banks without the need for licenses. This meant that these companies had to rely on Synapse for bookkeeping and ledger maintenance, as they could not hold customer funds themselves.
When Synapse declared bankruptcy in April, it left its banking partners without access to crucial systems for identifying customer records. This resulted in millions of dollars being unaccounted for, leaving end users bewildered and devastated.
The Federal Deposit Insurance Corporation (FDIC), which guarantees bank deposits up to $250,000 in the event of a bank failure, does not cover fintech platforms that operate without banking licenses. This lack of regulation has made it difficult for victims of scams like the Synapse collapse to recover their lost funds.
In response to the chaos caused by the Synapse bankruptcy, the FDIC proposed a new record-keeping rule in September to ensure that fintech companies maintain more robust ledger keeping for deposits received from customers.
Despite ongoing efforts by partner banks to reconcile with customers, the full extent of the money lost in the Synapse collapse remains uncertain. The Troutman Pepper lawsuit reported that between $65 million and $95 million of the $265 million held by Synapse is still missing.
The devastating impact of the fintech company’s collapse has underscored the need for stronger regulations in the industry to protect consumers and investors from similar scams in the future. It has also highlighted the importance of due diligence when investing in fintech companies and apps to prevent financial ruin.
