Synapse Collapse Reportedly Target of Criminal Grand Jury Probe

A grand jury is reportedly probing criminal conduct at bankrupt FinTech firm Synapse.

The grand jury has questioned an executive who sounded alarms before the company’s collapse, The Wall Street Journal (WSJ) reported Thursday (Feb. 20), citing unnamed sources.

Before its troubles, Synapse connected other FinTech firms with banks, helping these startups store their customers’ money. At its peak, the company was managing billions of dollars, and when it collapsed in April, thousands of people were locked out of their accounts.

A court-appointed mediator later revealed that up to $96 million in customer funds managed by Synapse could be missing, with some people saying the collapse has cost them their life savings, the report said.

Now, federal prosecutors in New York are investigating, per the report. Victor Medeiros, who had been a senior director in Synapse’s finance department, was subpoenaed in November as part of an investigation into fraud and other possible felonies.

Medeiros warned Synapse’s accountants at Kroll in 2023 that there was a shortfall of millions of dollars from customers’ accounts, and that this gap was the result of Synapse holding onto some of their funds for itself, the report said.

Before Synapse declared bankruptcy, Medeiros told Kroll that the company hadn’t been filling customer accounts with the full interest they were due, leaving them more than $3 million short as of mid-2023, according to the report. While Medeiros transferred some of Synapse’s own money to try to fill the gap, there was still a $3 million shortfall.

Kroll checked Synapse’s books and informed its board that Medeiros’ estimated shortfall was correct. The board demanded the shortfall be fixed right away, but Synapse was already running short on money and said it couldn’t cover the losses, the report said.

Synapse has accused its chief bank partner, Evolve Bank and Trust, of mishandling customer funds, while Evolve has argued the blame sits with Synapse.

In addition to the grand jury investigation, the Synapse bankruptcy has also led to civil actions by customers of the FinTechs Juno and Yotta against Synapse’s four partner banks: Evolve Bank and Trust, Lineage Bank, American Bank and AMG National Trust.

As PYMNTS reported in December, the suit alleges “gross mismanagement” of the deposits that were tied to the FinTechs, with the plaintiffs saying they lost access to their funds when Synapse filed for bankruptcy. Around $85 million in customer funds across 100,000 customers “had gone missing,” the filing said.