Fed Ignored Thousands of Desperate Synapse Victims, Continues to Stonewall Doc Requests
Connecticut Argues Report Showing “Regulatory Excellence” Is A Danger to Safety and Soundness of the State's Banking System
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Fed Ignored Thousands of Desperate Synapse Victims, Continues to Dodge Accountability by Stonewalling Document Requests
The lawsuit I filed against the Federal Reserve Board of Governors was successful in forcing a response to my Freedom of Information Act request, filed nearly a year ago — even if that response leaves much to be desired.
The Fed ignored the bulk of the FOIA request, claiming — without actually undertaking a meaningful search or examination of potentially responsive documents — that “a reasonable interpretation of your request is that it seeks information that would only be in the Board’s possession in connection with its supervision of Evolve Bank,” Benjamin W. McDonough, Deputy Secretary of the Board, wrote.
McDonough’s letter continued, saying, “I have concluded that it is not reasonably likely that the Board would have records responsive to your clarified request, because any records that would fall within one of your requested categories of records is likely to be subject to at least one of Exemptions 1, 4, 5, or 8, thus making such records nonresponsive,” referencing exemptions to FOIA for classified information (1), trade secrets (4), privileged communications (5), and financial supervisory information (8).
The Federal Reserve did produce a single document: a 31-page high-level summary of approximately 1,600 complaints from victims of the Synapse/Evolve situation received between the date Evolve froze users’ funds, on or around 10 May 2024, and the date of my original FOIA request, on 24 July 2024.
The St. Louis Federal Reserve’s response to victims’ complaints appears to have been limited to sending form letters, one version of which seen below asserted — without any apparent investigation or clear legal justification — that the St. Louis Federal Reserve, which oversees Evolve Bank & Trust, is “unable to resolve” victims’ complaints.
Despite the unprecedented, overwhelming volume of complaints, to date, federal and state banking regulators, including the St. Louis Federal Reserve and the Federal Reserve Board, have made no official statements, apart from brief letters sent in response to outreach from the Synapse Chapter 11 trustee, nor taken any known actions to address the situation, assist impacted victims, or address any potential regulatory or criminal wrongdoing by institutions they oversee.
Gallingly, in the government’s response to my lawsuit seeking to enforce my FOIA request, U.S. Attorney for Washington, DC, Jeanine Pirro (yes, that Jeanine Pirro) argues that, while “there may be some public interest in the records sought,” the government “lacks knowledge or information sufficient to form a belief as to the existence or extent of any public interest.”
Despite the continuing hardship facing Synapse/Evolve victims, the Federal Reserve appears determined to continue stonewalling rather than turn over documents that could shed light on how this disaster was allowed to happen — and regulators’ decision to do seemingly nothing about it.
Senators’ Requests for Information Have Gone Unanswered
My FOIA request is hardly the only attempt at accountability that has been rebuffed or ignored altogether.
During Federal Reserve Governor Michelle Bowman’s confirmation process for the role of Vice Chair of Supervision, Bowman’s response to written questions from Senator Elizabeth Warren related to her role on the Fed’s Committee on Consumer and Community Affairs provided no meaningful answers to Warren’s questions.
Bowman emphasized her purported “concern,” writing, “I continue to be concerned about the ongoing complaints and harm that customers have experienced in the wake of the Synapse bankruptcy. The Federal Reserve is carefully following the issues that have been raised during the Synapse bankruptcy proceedings, particularly regarding the banks that partnered with Synapse. The Federal Reserve takes these concerns seriously.”
Despite the Fed’s and Bowman’s concerns, neither have taken any known actions to help the Synapse/Evolve victims, many of whom have faced hardships that include evictions, automobile repossessions, and struggles affording medical care, with more than one person impacted by the situation saying they have contemplated suicide.
An additional letter sent around the one-year anniversary of Synapse’s failure by Democratic Senators Warren, Fetterman, Baldwin, and Wyden to Bowman seeking documents and calling for accountability, including a commission “to better understand the Federal Reserve’s supervisory and regulatory failures related to Evolve,” has not been publicly answered by Bowman.
While the Fed and Bowman have so far been able to duck accountability for the Synapse/Evolve disaster and Bowman was successfully confirmed as Vice Chair for Supervision, the ongoing episode is a stain on her record and a cloud that hangs over her new role overseeing regulatory and supervisory matters for the Federal Reserve.
Facing A Lack of Resources and Evolve’s Ongoing Obstruction, McWilliams Gives Up, Asks Court to Liquidate Synapse or Dismiss Bankruptcy Case
Meanwhile, Jelena McWilliams, the Chapter 11 trustee in the Synapse bankruptcy, is calling it a day: as was anticipated, she has filed a motion asking the judge in the case to either convert it to a Chapter 7 liquidation or dismiss the case outright.
McWilliams’ motion reiterates that the bulk of the $219 million in victims’ funds held by the banks when she took over as trustee, on 24 May 2024, has been disbursed.
The size of the shortfall between what victims are owed and what Synapse partner banks ultimately held is still unknown, with the estimate of the gap remaining somewhere between $65 million and $95 million.
According to McWilliams’ motion, “Due to the lack of resources in the Debtor’s estate and certain Partner Financial Institutions refusal to provide reconciliation and distribution data on a voluntary basis, the Trustee has been unable to independently ascertain the exact amounts of a potential shortfall.”
While McWilliams doesn’t specify which partner banks refused to provide reconciliation and distribution data, the record in the bankruptcy case and other public statements strongly suggests she’s referring to Evolve Bank & Trust’s obstruction by refusing to confirm how much it has disbursed to victims, how much remains to be disbursed, and, perhaps most importantly, the status of the approximately $34 million in reserve funds that remained after Evolve unilaterally took $8 million from the reserve funds for itself.
Evolve has alleged, without providing any evidence, that these funds were “to cover potential losses” to the bank as it wound down its relationship with Synapse and for money Synapse owed it.
It remains unclear why McWilliams and the Synapse estate chose not to pursue recovery from Evolve of the $34 million to $43 million in reserve funds that are known to have existed.
While it’s true that the Synapse estate lacked resources to effectively litigate these claims, these funds represented the only meaningful asset available to the estate — which, had the estate been able to recoup, could have been used to fund an independent comprehensive reconciliation effort.
McWilliams’ motion appears to acknowledge this, saying, “While the Trustee has explored the possibility of pursuing certain causes of action on behalf of the estate, the estate has no available funds to investigate the viability of those claims in earnest or to finance any litigation efforts in connection therewith.”
Despite pursing alternative financing options, “in light of the significant investigative work required and the currently speculative nature of the potential value of any causes of action, the Trustee and her professionals have been unable to find suitable arrangements with respect to the causes of action that will return meaningful value back to the estate,” the motion says.
Lacking any resources, there is “[n]o further work related to the reconciliation process remains in which the Debtor’s estate can meaningfully participate,” McWilliams writes in the motion.
While there is no question that McWilliams’ authority, as the Chapter 11 trustee representing the Synapse estate, faced significant material and legal constraints, it is far from clear that the trustee pursued every avenue available to her.
Sources involved in the bankruptcy process speculate that federal banking regulators — specifically, the FDIC, which McWilliams herself previously led — may have exerted pressure on McWilliams to avoid taking actions, such as pursuing the reserve funds, that could have increased the likelihood of any of the banks involved failing.
Some involved in the process even theorized McWilliams may have been willing to entertain such requests from banking regulators in hopes of later returning to a role in government.
Amended Yotta Lawsuit Accuses Evolve of “Running a Ponzi Scheme,” Stealing $75 Million of End Users’ Funds
While the bankruptcy process is winding down, multiple other civil cases related to the matter continue to be litigated.
Last week, Yotta, the fintech with the largest number of users and deposits involved in the Synapse catastrophe, filed an amended complaint in its lawsuit against Evolve Bank & Trust and Evolve Bancorp in US District Court in the Northern District of California.
In its amended complaint, Yotta alleges that Evolve “utterly failed in its most basic duties to its customers by misappropriating tens of millions of dollars in customer funds, lying in order to cover up its malfeasance, and running a ponzi [sic] scheme.”
Per Yotta’s complaint, “In violation of [Evolve’s] representations to Yotta and end users, responsible banking practices, and basic morality, Evolve stole more than $75 million from end users.”
Yotta’s argument essentially boils down to, Evolve, through its own actions and through Synapse’s actions as its agent, continuously represented to Yotta and to Yotta’s end users that their funds were safe, properly accounted for, and available for withdrawal at any time — even after Evolve knew that this was not, in fact, the case.
According to Yotta’s amended complaint, “Evolve engaged in a single fraudulent scheme to (a) lie to Yotta and others about Evolve’s controls, technology, and capability, (b) steal customers money, and (c) go to great lengths to conceal and lie about its theft, including by providing false and misleading transaction and account balance information to Yotta and its end users.”
Yotta’s amended complaint also resurfaces the claims against business banking startup Mercury, which has tried to distance itself from the Synapse meltdown and is itself in the midst of a messy breakup with Evolve.
Per the complaint, “Prior to [the Mercury] migration, according to records, Evolve held approximately $3.2 billion of Mercury customers’ funds and $500 million of other fintech customers’ funds in one or more commingled FBO accounts… But Yotta’s investigation indicates that Evolve intentionally handled the migration process in such a manner as to cause Mercury and/or its users to receive almost $50 million more than they were entitled to.”
Yotta says that the result of how funds were commingled between programs and how Mercury’s abrupt migration was handled resulted in “Evolve transfer[ing] Yotta end user funds to Mercury end users,” thereby “forc[ing] Yotta end users to absorb the shortfall in Mercury customer funds.”
In discussing the Russia-linked data breach of Evolve, which comprised Synapse end users’ data, Yotta’s complaint doesn’t mince words, arguing, “Either Evolve was so pathologically incompetent that it did not detect the penetration of its network and pilfering of its customers’ most sensitive secrets, or it knew about the theft and chose not to tell customers, allowing criminals the ample opportunity to exploit those secrets without warning.”
Lineage Files Motion to Dismiss in Colorado Class Action
In the class action suit against Evolve, AMG, and Lineage, filed in US District Court for the District of Colorado, Lineage last week filed a motion seeking to dismiss the complaint against it.
Lineage argues that Synapse was its customer — not the end users represented in the class action.
Therefore, Lineage says in its motion to dismiss, the bank “owed no legal duty to Plaintiffs, who were not its customers.”
Because the end users represented in the case were not customers of the bank, Lineage had no fiduciary duty to them; nor did any “special relationship” exist between the bank and end users, Lineage says in its motion.
A hearing on Lineage’s motion to dismiss has yet to be scheduled.
Despite Unanswered Questions, OCC’s Top Priority is “Accelerating Bank-Fintech Partnerships”
The lack of clarity on what went wrong with Synapse and its bank partners hasn’t dampened industry stakeholders’ and current regulators’ enthusiasm for a broadly deregulatory agenda, including actively promoting bank-fintech partnerships, like those that led to as much as $95 million in depositor funds to go missing in the Synapse/Evolve case.
In April, Conference of State Bank Supervisors President and CEO Brandon Milhorn gave remarks at the Federal Reserve Bank of San Francisco’s 2025 Fintech Conference, touting bank-fintech partnerships as “particularly important for community banks.”
Milhorn recycled common talking points about the supposed benefits fintech partnerships can bring struggling community banks, including the ability to reach new depositors, cut operational costs, reach underserved communities, and reduce the cost of financial products.
Milhorn did not, however, acknowledge or address the risks that come with these types of bank-fintech partnerships.
For her part, Fed Governor Bowman, now the Vice Chair for Supervision, has continued to describe innovation in the banking system as an “imperative,” despite unanswered questions about how a bank under Fed supervision seemingly can’t account for as much as $95 million of fintech depositor funds.
In remarks she gave this February, Bowman said:
Regulators must be open to innovation in the banking system. Our goal should be to build and support a clear and sensible regulatory framework that anticipates ongoing and evolving innovation—one that allows the private sector to innovate while also maintaining appropriate safeguards. We must promote innovation through transparency and open communication, including demonstrating a willingness to engage during the development process.
Bowman continued, saying, “We must prioritize understanding the risks and benefits of new technologies before developing a supervisory posture, especially when applying rules and using the "soft" power of supervision to discourage its use.”
Perhaps most noteworthy are remarks acting Comptroller Rodney Hood made just last week, specifying the OCC’s number one priority is “accelerating bank-fintech partnerships” — despite the lingering unanswered questions and utter lack of accountability around the Synapse/Evolve disaster.
Acting Comptroller Hood emphasized how the OCC has taken “meaningful steps to foster safe, responsible innovation,” including through the establishment of its Office of Financial Technology (though he neglected to mention the first person chosen to lead that office turned out to be something of a conman with a criminal record.)
Hood continued to highlight the OCC’s “agile tools,” including regulatory sandboxes, TechSprints, and virtual office hours, designed to help “fintechs develop, test, and launch innovative solutions within a responsible framework” and to “allow institutions to better serve customers, broaden access, and respond to changing expectations.”
I suspect those kinds of agile tools are cold comfort to the victims of Synapse and Evolve who continue to wonder when — or if — they’ll ever again see the money they were led to be believe they were safely depositing in an FDIC-insured institution.
Are you a current or former staffer at a banking regulator with a tip to share about the Synapse situation? Get in touch via anonymous email or reach me on secure messaging app Signal at mikulaja.01Connecticut Banking Commissioner Says Report Showing “Regulatory Excellence” Is Danger to Safety and Soundness of Its Banking System
The Conference of State Bank Supervisors, commonly known as CSBS, is non-governmental association of state bank regulators. CSBS is organized as a 501(c)3 non-profit.
CSBS’ objectives include “protecting and advancing” the country’s dual banking system, in which both the federal government, through the Office of the Comptroller of the Currency, and individual state and territorial governments, through their respective regulators, can charter banks and license various other financial activities.
CSBS’ stated mission is to “support[] state regulators in advancing the system of state financial supervision by promoting safety and soundness, consumer protection and economic growth and fostering innovative, responsive supervision.”
One way in which CSBS pursues its mission is through the accreditation of state banking regulatory agencies, which it first began doing in 1984.
According to the CSBS’ accreditation handbook, “The CSBS Accreditation Program is often credited as the most effective tool for advancing state financial regulation. As of March 31, 2018, a total of 46 state banking agencies have achieved and maintained the rigorous standards set forth by the program.”
CSBS evaluates state banking regulators across five areas that include administration and finance, personnel and training, bank examination policies and procedures, bank examination capabilities, and bank supervision and legislation.
Agencies must obtain a minimum score of at least 875 out of 1,590 to be accredited.
It’s fairly typical for state financial regulators to publicly announce when they have been reaccredited, as the Connecticut Department of Banking did in February 2025.
In that press release, Connecticut Banking Commissioner Jorge Perez, who has held the role for more than 10 years, hailed what he described as the department’s “regulatory excellence and industry leadership,” saying, “This reaccreditation highlights the dedication and expertise of our staff in upholding the highest standards of regulatory and supervisory excellence.”
Yet that characterization is difficult to square with Commissioner Perez’s response to an appeal of the Department’s refusal to release its accreditation report in response to a state freedom of information request from Fintech Business Weekly.
In response to an appeal submitted to the state’s Freedom of Information Commission, a state assistant attorney general wrote in part, “The CSBS examination report includes information obtained, collected or prepared in connection with CSBS’ examination of the Department of Banking, and the Commissioner has expressed his opinion that release of the information could affect the safety and soundness of the Connecticut banking regulatory system and all the entities subject to the supervision of the Commissioner, and that the disclosure of such information would not be in the public interest.”
Perez, the banking commissioner, and the Connecticut assistant attorney general did not make clear in their comments how the public release of the accreditation report, which Perez claims shows the agency’s “regulatory and supervisory excellence,” could impact the safety and soundness of the entire Connecticut banking system.
For its part, the CSBS argued in a letter to Commissioner Perez that Connecticut is justified in refusing to release the report, because it is copyrighted.
CSBS’ General Counsel, Margaret Liu, sent a letter to Perez on 24 June 2025, making the dubious argument by writing in part, “The Conference of State Bank Supervisors (“CSBS”) has been made aware of a Connecticut Freedom of Information Act Commission hearing and order to show cause related to the CSBS Report pertaining to the CSBS Education Foundation’s accreditation evaluation of the Connecticut Department of Banking (“Department”). Please be advised that the CSBS Report is protected under applicable copyright laws and contains and is based on a myriad of trade secrets.”
FT Partners Monthly: $6.6 Billion in May Funding Rounds
The latest FT Partners’ monthly market update and analysis showed a total of $6.6 billion across 277 deals in May, about flat month over month and an increase of $1.5 billion vs. May 2024.
I’d be curious to see a break down of funding going to crypto/stablecoins vs. more “tradfi” fintech…
Other Good Reads & Listens
Interchange Fees in Payment Networks: Implications for Prices, Profits, and Welfare (Federal Reserve Bank of Philadelphia)
Why we should worry about the rise of stablecoins (FT)
Global Fintech Report 2025 (Boston Consulting Group & QED)
What World Does Bitcoin Want To Build For Itself? (Defector)
The GENIUS Act Sets Stablecoin Bankruptcies Up To Fail (Todd Phillips)
Listen: For Whom the IPO Bell Chimes (Fintech Recap)
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