Synapse Financial Technologies: the collapse of a banking-as-a-service provider

analysisSynapse's banking-as-a-service model relied on pooled accounts at Evolve Bank & Trust and, from 2023, on a cash management program run by its broker-dealer, Synapse Brokerage, with AMG National Trust, Lineage Bank and American Bank. After the 2023 breakdown with Evolve and Mercury's departure, the April 2024 bankruptcy, the failed TabaPay sale and the May 2024 freeze left end users without access to their money; the banks paid out most of the $219 million they held, while the trustee's estimated $65 million to $95 million shortfall against Synapse's ledger had not been established in amount or source when the trustee moved to end the case. The CFPB obtained a stipulated judgment, California and FINRA acted against the brokerage and two of its officers, and Evolve consented to a Federal Reserve order. Each account keeps the parties' responses, the qualifications of settlement findings and the unresolved status of the litigation beside it. ^{1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32}

analysisSynapse Financial Technologies, Inc. is a Delaware corporation last based in Woodland Hills, California. In its bankruptcy filings it described itself as a non-bank technology company whose software let financial technology platforms offer partner banks' products to their own customers, the end users, and said that as of January 2024 it worked with 100 fintechs and more than 20 partner institutions and that about 10 million end users used its platform. By the bankruptcy, the trustee reported, most end users' money sat in pooled for-the-benefit-of (FBO) accounts, and the rest in deposit accounts, at four banks: American Bank, AMG National Trust, Evolve Bank & Trust and Lineage Bank. FINRA found, in a settlement order to which the respondent consented without admitting or denying the allegations and whose findings bind no other respondent, that Synapse's two deposit banks, which it does not name, kept ledgers only at the omnibus-account level and relied on Synapse's ledgers for individual balances. ^{1 2 3 4 5 6}

analysisSankaet Pathak founded the business in 2014 as Synapse Payments LLC and was chief executive until May 2024. In 2018 and 2019 Synapse raised $50 million in rounds led by Trinity Ventures, Core Innovation Capital and Andreessen Horowitz. It wholly owned two subsidiaries: Synapse Credit LLC, which it said it set up to hold state lending licences, and Synapse Brokerage LLC, a registered broker-dealer that, according to FINRA, Synapse acquired in July 2020. ^{4 7 8 9 10 11 12 3 13 6}

analysisIn September 2023 Synapse and Evolve fell into a dispute over the funding of Evolve's FBO accounts, reserves and compensation: on September 25 Evolve sent Synapse a notice of material breach and raised its required reserve; the notice itself is not retained. According to Synapse, Mercury, its largest client, gave notice the same day that it would not renew, and two days later Mercury and Evolve said they would move more than $3 billion of depositor funds to a direct Evolve program. Pathak put Mercury's share at about 35% of Synapse's business in September 2023 and unnamed former employees at around 60% of revenue at its peak, both informal estimates. Mercury said that after its experience with Synapse it had concluded that direct relationships with its partner banks were in its own and its customers' long-term interest. FINRA found that from about July 2023 to February 2024 fintechs sent opt-out notices worded by Synapse Brokerage, and that by the end of November 2023 more than two million brokerage accounts had been opened for end users moved into its cash management program; the same order also describes the Mercury move, and its findings were consented to without admitting or denying the allegations, bind no other respondent and name neither the fintech nor the banks. ^{1 2 3 4 5 6}

analysisSynapse filed for Chapter 11 on April 22, 2024, planning to sell its business to TabaPay; on May 9 it reported that it had failed to reach a settlement with Evolve, and the buyer said it would not proceed without one. On May 11, the CFPB alleges, Synapse stopped maintaining Evolve's access to an online dashboard of end-user balances and stopped sending daily ledger reports, after which Evolve and Lineage froze all end-user activity; the trustee and the debtor neither admitted nor denied these allegations in the stipulated judgment, but agreed that they would be taken as true in any proceeding based on it. Synapse told the court that Evolve froze all accounts in response to a temporary pause in its dashboard access and had appropriate access from at least the morning of May 13. On May 24 the court ordered the appointment of a trustee, and the U.S. Trustee appointed Jelena McWilliams, a former chair of the FDIC, to run a company whose remaining staff had all been terminated. ^{7 8 9 10 11 12 2 13 3 6}

analysisAt the appointment the four banks held $219,077,467 of FBO funds connected with Synapse, and by November 12, 2024 about 85% had been paid out. In June 2025 the trustee told the court that an apparent shortfall of $65 million to $95 million against Synapse's ledger had persisted throughout and appeared to predate the bankruptcy, but that its exact amount and sources had not been established. Pathak attributes it to discrepancies between Synapse's and Evolve's records and to fees Evolve debited from customer accounts; Evolve calls his version untrue, says Synapse failed at keeping accurate ledgers, which only Synapse was in a position to do, and that his claims rest on demonstrably inaccurate ledgers his company prepared. These are competing statements that no court or regulator has decided. ^{1 2 3 4 5 6 7}

analysisA stipulated judgment in the CFPB's case, entered on September 12, 2025 without admission or denial of the allegations by the trustee or the debtor, permanently bars Synapse from deposit-taking, money transmission, custody of funds and payment processing, and imposed a $1 civil money penalty which, the CFPB said, enabled it to compensate harmed consumers from its Civil Penalty Fund; the fund allocated $46,248,291 in November 2025 and $8,965,767 in May 2026. California revoked Synapse Brokerage's broker-dealer certificate in January 2025 and FINRA expelled the firm in June 2025. In June 2024 Evolve consented, without adjudication, to a cease-and-desist order of the Federal Reserve Board and the Arkansas State Bank Department covering its fintech division and its anti-money-laundering and sanctions compliance; the Federal Reserve said the action was separate from the Synapse bankruptcy. ^{1 2 3 4 5 6 7 8}

analysisPutative consumer class actions against Evolve, AMG and Lineage were pending in Colorado at the cutoff, with no finding of liability. In a putative class action classified as a RICO case against Synapse, Synapse Brokerage, Pathak, Mark Elliot Paverman and Jeffrey Alan Stanley in the Central District of California, the docket shows no ruling on the merits. Press reports of a federal grand jury investigation into Synapse rest on a court filing that is not retained; the U.S. Attorney's Office declined to comment, Pathak said prosecutors had not contacted him, the trustee and the judge would neither confirm nor deny any referral, and no charge appears in the record. The trustee reported in June 2024 that the estate appeared to have no available liquidity, and no qualified bid arrived for its platform and data; on the trustee's motion of June 5, 2025 the court approved dismissal on November 12, 2025, and the case was closed on June 29, 2026. ^{9 10 11 12 13 14 15 16}