Class-Action Lawsuit Targets Evolve and Partner Banks Over Synapse Bankruptcy Fallout

The fallout from BaaS middleware provider Synapse's April 2024 bankruptcy continued into November 2024 with a class-action lawsuit targeting its partner banks, including Evolve Bank & Trust, Lineage Bank, AMG National Trust, and American Bank. The lawsuit alleges the banks mishandled customer deposits that were routed through Synapse's middleware layer by fintechs such as Yotta and Juno. Up to $95 million in customer funds remain unaccounted for, with affected customers reportedly receiving minimal reconciliation payments — in some cases pennies on the dollar.

Evolve Bank offered partial distributions to some affected customers, but the amounts fell far short of original balances. The case has drawn complaints to federal regulators and intensified scrutiny of the BaaS model where middleware providers sit between banks and end-user fintechs. The litigation highlights systemic risks in bank-fintech partnerships that rely on third-party middleware for deposit reconciliation and ledger management.

The situation has become a cautionary example for the BaaS industry regarding counterparty risk, funds segregation, and regulatory oversight of multi-party banking arrangements.