Financial institutions Evolve and Lineage Bank confront legal action due to allegations of missing funds.
In the aftermath of Synapse Financial Technologies' bankruptcy in April 2024, a class action lawsuit has been filed against Evolve Bank & Trust, Lineage Bank, and other partner banks, alleging negligence, mismanagement of funds, unjust enrichment, breach of fiduciary duty, and failure to maintain proper account records [1]. The plaintiff, Dustin Justus, a resident of South Carolina, claims he was unable to withdraw his funds from savings gamification app Yotta Technologies when he attempted to do so in May 2022 [2].
The lawsuit primarily targets these banks for underpaying consumers whose accounts were frozen following Synapse's collapse. Key allegations include the banks' lack of direct bank access to Synapse's ledger and contingency planning, along with the failure to maintain their own copy of the ledger, contributing to their failure to keep track of the money [2].
Lineage Bank has demonstrated transparency, diligence, and accountability in returning funds to affected Synapse customers. The bank claims it has returned approximately 99% of the funds it held to affected Synapse customers since Synapse collapsed [2]. However, Evolve Bank & Trust declined to comment on the active litigation [2].
Approximately $219 million was locked in partner bank accounts, with significant discrepancies in records. There is a gap of up to $96 million between funds held and Synapse’s ledgers [2]. The Consumer Financial Protection Bureau (CFPB) is preparing a complaint against Synapse, alleging failures in managing customer funds, while the FDIC is intensifying oversight of "for benefit of" (FBO) accounts, a practice implicated in the Synapse collapse [3][5].
Attorneys are seeking individuals who received letters about money owed to them, potentially leading to a class action lawsuit to recover full amounts [1]. If successful, the outcome could result in settlements or court judgments, potentially affecting similar fintech partnerships and regulatory policies [1][5].
The lawsuit against Evolve Bank & Trust, Lineage Bank, and Evolve Bancorp in the U.S. District Court for the Western District of Tennessee alleges unjust enrichment, negligence, breach of fiduciary duty, failure to provide accounting details, and inability to hold funds in constructive trust for the customers [6]. AMG and Lineage Bank contested Evolve's findings, arguing that accurate reconciliation was "impossible" due to Synapse's practice of making bulk transfers unrelated to specific users [7].
The latest lawsuit notes that many customers cannot access their deposits and have "no clear ability to discern" which bank or banks hold their money [2]. As the lawsuit progresses, it may lead to further investigations into the banks' practices regarding FBO accounts and fund management [1][2]. Given the ongoing nature of these legal proceedings and the evolving regulatory landscape, the status of the lawsuit is fluid and subject to updates as new developments occur.
Key Developments:
- Class Action Efforts: Attorneys are seeking individuals who received letters about money owed to them, potentially leading to a class action lawsuit to recover full amounts [1].
- Frozen Funds and Reconciliation Issues: Approximately $219 million was locked in partner bank accounts, with significant discrepancies in records. There is a gap of up to $96 million between funds held and Synapse’s ledgers [2].
- Regulatory Scrutiny: The Consumer Financial Protection Bureau (CFPB) is preparing a complaint against Synapse, alleging failures in managing customer funds. The FDIC is also intensifying oversight of "for benefit of" (FBO) accounts, a practice implicated in the Synapse collapse [3][5].
- Lawsuit Context: The lawsuit is part of broader legal actions following Synapse's collapse, which prompted numerous consumer complaints and regulatory investigations [1][2].
Future Directions:
- Litigation and Regulatory Action: As the lawsuit progresses, it may lead to further investigations into the banks' practices regarding FBO accounts and fund management [1][2].
- Potential Settlements or Judgments: The outcome could result in settlements or court judgments, potentially affecting similar fintech partnerships and regulatory policies [1][5].
