The senators, who include Sen. Elizabeth Warren, D-Mass., and Sen. John Fetterman, D-Pa., made this demand in a letter sent to Federal Reserve Governor Michelle Bowman, The Wall Street Journal (WSJ) reported Tuesday (April 22).
The Federal Reserve regulated Evolve Bank, the Tennessee bank that was one of the banks that held funds for Synapse, according to the report.
Synapse served as a middleman between startups offering savings apps and banks that stored the funds of the startups’ customers, the report said.
When Synapse filed for bankruptcy in April 2024, the startups’ customers couldn’t access their funds, a court-appointed mediator found that as much as $96 million in customer funds could be missing, and the customers’ missing funds were not covered by Federal Deposit Insurance Corp. (FDIC) insurance, per the report.
In their letter to Bowman, the senators wrote, per the report: “There were several troubling warning signs that should have prompted immediate supervisory and enforcement intervention from the Federal Reserve.”
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The Synapse bankruptcy is nearing its final stages, with the frozen funds involved in the case still unresolved, PYMNTS reported April 14.
On April 10, Trustee Jelena McWilliams filed a status report with the Central California Bankruptcy Court that laid the ground for dismissal or conversion of the case to Chapter 7, which involves the sale of a company’s non-exempt assets to repay creditors, typically resulting in the cessation of business operations.
McWilliams said in the status report that she “will conclude necessary estate administration activities and intends to file a motion seeking dismissal of this Case or, in the alternative, conversion of this case to Chapter 7, as appropriate.”
Many users of the banking services of the non-bank entities that were customers of Synapse were unaware that their funds, though held in FDIC-insured banks, were not directly insured due to the intermediary role of companies like Synapse, PYMNTS reported in November.
Many of these FinTech customers lost sums that include life savings of hundreds of thousands of dollars.
