CFPB Allocates $46 Million To Synapse/Evolve Victims In First-Ever Fintech Bailout
Despite Missing Millions, Evolve Got "Clean" Audits in 2021-2024, FTC Calls Crypto Heist A UDAP, PayPal Files For ILC Charter, Erebor Gets FDIC Conditional Approval, GENIUS Rulemaking & More
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CFPB Allocates $46 Million To Synapse/Evolve Victims In First-Ever Fintech Bailout
Christmas came early for the victims of the Synapse/Evolve catastrophe: the Consumer Financial Protection Bureau quietly updated its website to reflect that its Civil Penalty Fund has allocated $46,248,291 toward making “end users” whole. The news was first reported by Bloomberg Law’s Evan Weinberger last Thursday.
The news comes four months after the CFPB made an unexpected 11th hour entry into the case by filing an adversary complaint against Synapse. That case resulted in a stipulated final order and judgment that included a $1 civil money penalty. That $1 fine was a statutory requirement in order for the CFPB to tap its Civil Penalty Fund to compensate victims.
Apart from updating a page that lists allocations from its Civil Penalty Fund, the CFPB has not made any official press release nor updated a list of ongoing cases that involve payouts to consumers as of the time of publication.
Questions and a request for comment on the news sent to the CFPB and to acting director Russ Vought went unanswered as of the time of publication.
Now, the bad news: the approximately $46 million may or may not be the total of what depositors are actually owed. It is not clear how the CFPB calculated this amount.
During the course of the Synapse bankruptcy case, the Chapter 11 Trustee, former FDIC Chair Jelena McWilliams, repeatedly indicated the amount of the “shortfall” in customer funds was between $65 million and $95 million, though the exact numbers did shift somewhat over the course of the bankruptcy proceedings.
And, for its part, the CFPB, citing McWilliams’ work, put the shortfall between $60 million and $90 million.
Separately, in a regulatory action Finra is pursuing against two individuals affiliated with Synapse’s brokerage entity, the industry self-regulatory organization said the discrepancy between Synapse’s ledgers and the amount of funds held at “DDA Bank 1” — which appears to be Evolve Bank & Trust — is approximately $92 million.
That $92 million amount is consistent with allegations Synapse cofounder and former CEO Sankaet Pathak has made publicly regarding the cause of and total amount of missing depositor funds at Evolve:
However, looking back to the early days of the Synapse bankruptcy, court filings indicated that the aggregate amount end users were owed was about $265 million vs. $219 million in total held by Synapse’s partner banks — a difference of $46 million, which Fintech Business Weekly noted in April 2025, though this may be merely a coincidence.
Setting aside the question of whether or not the CFPB has allocated enough to fully reimburse out-of-pocket depositors, it is unquestionably good news that the agency is advancing the process — particularly given the chaos that has been intentionally inflicted on it under the leadership of Project 2025 architect and CFPB acting director Russ Vought.
Exactly when victims will receive compensation, however, remains unclear. A Fintech Business Weekly analysis of prior CFPB cases that resulted in payments to victims found the average time from a final judgment to the first payment being disbursed historically has been a whopping 682 days, or nearly two full years.
In the Synapse case, the final judgment was entered on September 12, 2025 and the allocation was officially made on November 28, suggesting Synapse victims may face a shorter timeline to receive the funds they are owed.
The CFPB uses third-party administrators to handle the logistics of paying out victims. One firm the CFPB frequently uses, Rust Consulting, is the same firm Evolve engaged to handle disbursements of the smaller subset of end user funds the bank acknowledged it was holding. Conceivably, if the CFPB also works with Rust in this case, it could help the process move along more quickly.
End users are, no doubt, eager to be made whole, given that it has already been 20 months since Synapse filed for bankruptcy, with users’ funds frozen the following month.
It will be interesting to see what precedent, if any, the bailout of Synapse and, by extension, Evolve sets — particularly given the current, growing wave of crypto firms, stablecoin issuers, and uninsured trusts offering banking-like products and experiences without the corresponding levels of oversight and the government safety net afforded to insured depository institutions.
Despite Missing Millions, Evolve Got “Clean” Audits in 2021-2024
In other Evolve-related news, the bank and its holding company, Evolve Bancorp, received “clean” or “unqualified” audit opinions for years 2021-2024, per documents exclusively obtained from the Federal Reserve Board of Governors by Fintech Business Weekly via a Freedom of Information Act request.
Evolve Bancorp and Evolve Bank & Trust were audited by Crowe in the years 2021, 2022, 2023, and by KPMG in 2024.
All four of those audit opinions were “unqualified,” meaning that the auditor has no reservations about the overall fairness or accuracy of the audit — despite credible public allegations as early as October 2023 of a gap of $13 million in end user funds and an acknowledgement that Synapse had previously erroneously received $3.25 million of user funds from Evolve.
A summary letter from Crowe, dated March 29, 2024, states in part (emphasis added):
“In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Evolve Bancorp Inc. and Subsidiary as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with auditing standards generally accepted in the United States of America, Evolve Bancorp, Inc. and Subsidiary’s internal control over financial reporting as of December 31, 2023, based on criteria established in the Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) relevant to reporting objectives for the express purpose of meeting the regulatory requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) and our report dated March 29, 2024 expressed an unmodified opinion.”
Yet, at the time Crowe would have conducted the 2022 and 2023 audits, Evolve was already aware of and attempting to work through significant reconciliation challenges with Synapse — issues that included discrepancies between Synapse’s ledgers and what Evolve believed it held of hundreds of millions of dollars, per an email Evolve’s open banking controller, Chris Vendetti, exchanged with Synapse’s controller Victor Medeiros in November 2022.
And, in fact, in the course of conducting its audit of Evolve’s 2023 financials, Crowe requested information from Synapse in February 2024 — just two months before Synapse entered bankruptcy and three months before end users’ funds at Evolve were frozen.
As part of that audit, Crowe was seeking to “confirm the cash balances that [Synapse] held at Evolve Bank and Trust as of December 31, 2023.”
Per email records included as exhibits in the bankruptcy case, Synapse’s general counsel at the time repeatedly sought to discuss the request with Evolve’s founder and then-chairman, Scot Lenoir, and Evolve’s outside counsel, Caroline Stapleton.
Synapse’s general counsel pointed out that a list of accounts Evolve provided in response to this request included 113 accounts that weren’t on a data feed Evolve shared with Synapse daily and that the company didn’t open these accounts and weren’t aware of what they were used for.
Synapse’s general counsel also flagged that the list Evolve provided didn’t include 29 accounts that it seemingly should have.
In the email records included in the bankruptcy, Evolve did not respond to Synapse’s request to discuss the issue. Crowe ultimately gave Evolve an unqualified audit opinion for 2023.
By the time KPMG audited Evolve’s 2024 financials, Synapse had collapsed, end users’ funds at Evolve had been frozen, the size of the shortfall in funds was believed to between $65 million and $95 million, and Evolve had been hit with a far-reaching consent order from its primary federal regulator.
Yet KPMG, in a document dated April 2025, still gave Evolve an unqualified audit opinion:
It’s difficult if not impossible to reconcile all that has transpired between Synapse and Evolve with Crowe’s and KPMG’s unqualified audit opinions of Evolve’s balance sheets, income statements, and internal controls over financial reporting.
However, multiple banking and financial experts that Fintech Business Weekly asked, including former regulators, were not surprised by the unqualified audit opinions, citing that Evolve is not a publicly traded company that must comply with Sarbanes-Oxley and the wide latitude auditors have in formulating their opinions.
Asked if it surprised him that Evolve received “clean” audits in 2021-2024, Todd Baker, Senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University, told Fintech Business Weekly:
“Despite the way people often think about it, an accounting audit isn’t intended to, and doesn’t, directly capture risks of the type experienced by Evolve, and auditors bend over backwards not to take responsibility. So it is not surprising that Evolve got clean audits…
Arguably, once the problems with reconciliation with Synapse were known within Evolve, this should have been disclosed to the external auditors, who would then have to decide whether it should be highlighted as an internal controls weakness in the audit report and/or, in the extreme case, be so serious as to bring the overall accuracy of the financials into question—resulting in a qualified opinion under GAAP.”
According to the industry experts Fintech Business Weekly spoke with, what could be a problem for Evolve is if it knowingly or intentionally withheld information or misled its auditors to obtain these “clean” audit opinions.
A representative for Evolve did not respond to questions, including whether the bank withheld information or documents from its auditors or intentionally misled its auditors in order to secure “clean” audit opinions.
Representatives for Crowe and KPMG did not respond to questions, including whether or not they continue to stand by the “clean” audit opinions they gave Evolve.
Everything Else: FTC Calls Crypto Heist A UDAP, PayPal Applies for ILC Charter, Erebor’s FDIC App Conditionally Approved, GENIUS Notice of Proposed Rulemaking, Custodia Seeks En Banc Review, Lawmaker Proposes BaaS Study, OCC Files Amicus in Colorado DIDMCA Case
There was a lot of other news last week, as the OCC, FDIC, and the Fed have been very busy advancing their broadly deregulatory and pro-innovation / pro-crypto agendas.
Perhaps the most interesting development was actually a move by the Federal Trade Commission that finds a crypto service’s lax security policies that led to a $186 million heist constitutes an “unfair” act or practice.