CEO of Yotta confirms 85,000 bank accounts have been locked

In 2019, Adam Moelis co-founded a fintech startup called Yotta, aiming to provide a new saving platform for Americans to buffer life’s unpredictable swings.

However, rather than offering a solution, his company has unintentionally brought hardship to thousands of users who depended on Yotta for receiving salaries, paying bills, and emergency savings.

The problem started on May 11, when a conflict between Yotta’s banking associates, fintech intermediary Synapse and Tennessee’s Evolve Bank & Trust, froze accounts at Yotta and approximately 24 other startups. Synapse declared bankruptcy earlier this year after losing several key clients due to disagreements over customer funds tracking.

For the last three weeks, about 85,000 Yotta clients with a total of $112 million in savings have been barred from their accounts, Moelis informed CNBC. This interruption has thrown lives into chaos, compelled users to borrow money for basic needs, and cast uncertainty on planned events such as surgeries or weddings, he added.

“The stories are heartbreaking,” Moelis admitted. “We never envisioned this could occur. We collaborated with FDIC-member banks. We never thought such a scenario could unfold without any regulator stepping in to assist.”

The current turmoil has revealed the risks in a fintech sector that gained significance during a surge in venture capital investment, and the repercussions will likely be felt for years to come as regulators increase their oversight.

The “banking as a service” model allowed consumer fintech firms to rapidly introduce savings accounts and debit services. Companies like Synapse bridged the gap between startups and FDIC-backed banks that ultimately held the deposits.

The dispute between Synapse and Evolve Bank centers on a fundamental aspect of finance: maintaining accurate transaction and balance records. The two disagree on the distribution of Yotta’s funds between Evolve and other banks Synapse partnered with.

Synapse has not responded for comment, and Evolve has pointed fingers at Synapse for the breakdown.

The Synapse bankruptcy primarily impacted lesser-known consumer fintech companies, especially after larger fintech entities like Mercury and Dave abandoned the Synapse platform in the past year.

Consequently, Yotta, which motivated users to save money through weekly lottery-style sweepstakes, has emerged as one of the most heavily impacted. Accounts at crypto firm Juno and family and teen savings provider Copper have also been frozen.

Moelis, who has communicated with other fintech leaders affected by the Synapse debacle, estimates that a minimum of 200,000 total customer accounts with balances are locked. Although Synapse claims to have 10 million end users in court documents, it’s probable that the number of active accounts is significantly less, according to Moelis.

The fintech co-founder believes that the relatively restricted scale of the problem and the lack of wealth among most affected individuals have allowed regulators to adopt a wait-and-see approach. He recalled how regulators quickly stepped in during last year’s regional banking crisis that put the uninsured deposits of startups and affluent families at risk.

“In my opinion, if this were happening on a larger scale, I believe regulators would have intervened by now,” he stated. “We have real, ordinary Americans who aren’t necessarily rich and lack lobbying power being affected.”

The Federal Reserve and the Federal Deposit Insurance Corp. have refrained from commenting on the issue. Agency representatives have referred to their ongoing attempts to urge banks to manage the risks associated with partnering with fintech companies.

But the recent developments in the California bankruptcy court overseeing the Synapse failure have given Moelis some hope that at least some relief, possibly a partial release of funds, may be on the way.

Last week, former FDIC Chair Jelena McWilliams was appointed trustee of Synapse. Her responsibility is to devise a plan to maintain Synapse systems and create a solution to return funds to end users, “the rightful owners of those funds, as soon as humanly possible,” according to Judge Martin Barash.

Moelis clarified that he takes no sides in the Synapse-Evolve dispute; he simply wants a resolution.

“I don’t know who’s right or who’s wrong,” he stated. “We know the exact amount of money that entered the system, and we’re certain that’s the correct figure. Money doesn’t just vanish; it must be somewhere.”