Evolve Bank on Monday night filed a motion to dismiss a
In its motion, Memphis-based Evolve Bank defended itself against the allegations made by Yotta, a New York savings app provider, that Evolve "utterly failed in its most basic duty to its customers, misappropriating and/or misplacing tens of millions of dollars in customer funds."
The case centers around Synapse Financial Technologies, a bank-fintech middleware provider that went bankrupt in May, leaving thousands of consumers without access to money they had deposited with its fintech partners. Synapse's four bank partners – Evolve Bank, Lineage Bank, AMG National Trust and American Bank – have returned some of these fintech end users' funds to them. But according to Synapse's bankruptcy trustee, former FDIC chair Jelena McWilliams, somewhere between
In its September lawsuit, Yotta alleged that Evolve Bank improperly deducted $25 million from the "for benefit of" accounts Synapse maintained for its fintech clients, for transactions that were never authorized by customers. These were fees Evolve charged Synapse for "account analysis" and for payment processing services from TabaPay. Yotta's lawsuit also claimed that Evolve botched its migration of another fintech, Mercury, from Synapse's software to Evolve's system, and accidentally gave Mercury or its customers almost $50 million more than they were entitled to. (Mercury has denied that it received any extra money in this migration.)
In Evolve's motion to dismiss, it challenged the legal merits of Yotta's lawsuit.
"Yotta's suit is a transparent attempt to place Synapse's liability on Evolve because Synapse is shielded from suit pending bankruptcy," the motion states. "That problem — that it is Synapse's conduct and not Evolve's that is at issue — infects every aspect of Yotta's claims."
In the motion, Evolve didn't deny that it charged the account analysis and TabaPay fees Yotta cited, nor that it may have deducted them from the wrong account. Evolve did say it had required Synapse to increase the amount of funds in its reserve account — a separate account funded by Synapse that covered liability to the bank and deficiencies in any FBO account — and transferred $35 million from that reserve account back into the FBO accounts "to reconcile Synapse's deficiencies, including from the fees that Yotta challenges."
Evolve's motion suggests that Evolve may have charged the fees to Synapse's FBO accounts in error.
"At most, Yotta alleges that Evolve misappropriated $18,186,152.06 from the FBO accounts with its collection of account analysis fees and TabaPay fees, and it credited almost twice that to the FBO account," the motion states. "Even taken as true, Yotta fails to plead any facts that show Evolve's purported temporary 'misappropriation' of fees it was contractually owed caused any harm to Yotta or its end users. Debiting the allegedly wrong account for fees it was undisputedly owed, without more, does not create an inference of fraud over administrative mistake."
Evolve's motion did not address Yotta's claim that $50 million got lost in the Mercury migration. This is one of many as-yet-unanswered questions about this case.
"More details coming out show some of the history, but none of this tells us where the missing money in the ecosystem is," said Todd Baker, a senior fellow at the Richman Center for Business, Law & Public Policy at Columbia University, and the managing principal of Broadmoor Consulting.
