The collapse of a fintech business has left thousands of investors reeling after their life savings were seemingly stolen, totaling up to a staggering $90 million. Among those affected is Kayla Morris, a teacher from Texas, who lost $280,000 that had been earmarked for a new home for her family. To add insult to injury, she was only able to recoup a mere $500 from her investment.
The downfall of Synapse, a fintech intermediary that facilitated banking applications like Yotta and Juno, has resulted in a class action lawsuit brought by over 100,000 Americans who had entrusted their funds to the platform. What initially seemed like a promising way to manage personal finances through gamification quickly turned into a nightmare for many unsuspecting customers.
For Morris and others like her, the situation is dire. With funds tied up due to the bankruptcy of Synapse, there is a lack of clarity on how and when they will be able to access their money. Even the banks that partnered with Synapse are struggling to make sense of the intricate ledger issues that have arisen in the wake of the company’s collapse.
The rise and fall of Synapse, which was founded in 2014 with the backing of venture capital firm Andreessen Horowitz, highlights the risks associated with fintech companies that operate without the safety net of traditional banking licenses. While the FDIC provides insurance for bank deposits up to $250,000 per account, fintech platforms must rely on partnerships with FDIC-insured banks to safeguard their customers’ funds.
In the case of Synapse, the company served as a middleman between fintech companies and their partner banks, handling the crucial tasks of bookkeeping and ledger maintenance. However, when Synapse went under in April, the system that tracked customer deposits became inaccessible, leaving end-users like Morris and Zach Jacobs, who had invested nearly $100,000 in Yotta, in the lurch.
As the fallout from Synapse’s bankruptcy continues to unfold, the extent of the financial damage is becoming clearer. A court filing in September revealed that between $65 million and $95 million of the $265 million in customer funds held by Synapse is unaccounted for. The uncertainty surrounding the missing funds has prompted the FDI to propose new rules for ledger keeping to prevent similar disasters in the future.
For Morris, Jacobs, and the countless others who have been affected by the collapse of Synapse, the road to financial recovery is long and uncertain. While they wait for answers and restitution, they are left to grapple with the devastating realization that their hard-earned savings may never be fully recovered. The lesson from this cautionary tale is clear: when it comes to investing in fintech, buyer beware.
