The proposed class action lawsuit was filed in the US District Court for the Western District of Tennessee on Friday, and it regards negligence in monitoring and mismanagement of funds connected to the collapse of fintech Synapse. Evolve’s parent company, Evolve Bancorp, was also named in the lawsuit.
The case was filed in response to a jurisdictional challenge filed last November. Synapse’s four partner banks, including American Bank, AMG National Trust, and Evolve, were sued over the alleged mishandling of customer funds following the fintech’s bankruptcy.
Justus, a resident of South Carolina, signed up for an account with Yotta Technologies, a savings gamification app, and deposited funds. His account balance showed USD 4420.50. However, when he attempted to withdraw money in May last year, the transfer was cancelled. He received $3.46 in reconciliation months later and appealed the deposit, which was rejected, the lawsuit contends.
Yotta and Juno partnered with Evolve and Lineage for banking services, with Synapse providing middleware for account opening, transactions, and ledger management. Since fintechs cannot directly hold customer deposits, they offered web and mobile banking alternatives where customers deposited funds to partner banks through their platforms, with Synapse mediating these relationships and the banks maintaining actual custody of customer funds.
The bank’s lack of access to Synapse’s ledger and contingency planning contributed to their respective failures to keep track of the funds, along with the failure to maintain their own copy of the ledger. As a result, the plaintiff and class members’ funds were lost, stolen, or misplaced, while no defendant took responsibility, according to the complaint. Additionally, the defendants refused to return funds to the end users, leaving thousands of customers without access to their funds. However, a Lineage spokesperson said the bank has reconciled its records with the records of the Federal Reserve, and all Synapse-linked funds received by Lineage have been accounted for.
The lawsuit alleges that both banks were aware of the compliance issues before Synapse’s bankruptcy filing and claims “unjust enrichment” since the banks have accrued interest and derived profits from the use of the funds in their control. It also claims negligence, breach of fiduciary duty, failure to provide accounting details and documentation regarding the whereabouts of the money and inability to hold the funds in constructive trust for the customers.
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