For 15 years, former Texas teacher Kayla Morris put every dollar she could save into a home for her growing family.

When she and her husband sold the house last year, they stashed away the proceeds, $282,153.87, in what they thought was a safe place – an account at the savings startup Yotta held at a real bank.

Morris, like thousands of other customers, was caught up in the collapse of a behind-the-scenes fintech company called Synapse and has been locked out of his account for six months as of November. She had a hope that her money was still safe. Then she learned how much Evolve Bank & Trust, the lender where her funds were shall be heldwas prepared to return to her.

“We were informed on Monday that Evolve would only pay us $500 of the $280,000,” Morris said during a court hearing last week, her voice wavering. “It’s just devastating.”

The crisis started in May when a dispute between Synapse and Evolve Bank over customer balances boiled over and the fintech middleman cut off access to a key system used to process transactions. Synapse helped non-bank fintech startups like Yotta and Juno offer checking accounts and debit cards by connecting them with small lenders like Evolve.

In the immediate aftermath of Synapse’s bankruptcy, which happened after an exodus of its fintech clients, a court-appointed receiver found that up to $96 million in client funds were missing.

The mystery of where these funds were is has not been resolved, despite six months of court-mediated efforts between the four banks involved. This is mostly due to the estate of Andreessen Horowitz-backed Synapse does not have the money to hire an outside firm to perform a full reconciliation of its ledgers, according to Jelena McWilliams, the bankruptcy trustee.

But what is now clear is that ordinary Americans like Morris will bear the brunt of that shortfall and will get little or nothing from savings accounts which they thought was supported by The full faith and credit of the United States Government.

The losses show the risks of a system where customers didn’t have direct relationships with banks, instead relying on startups to keep track of their money, which offloaded that responsibility to intermediaries like Synapse.

“Reverse Bank Robbery”

There are thousands of others like Morris. While there is not yet a full figure for those remaining, 13,725 customers on Yotta alone say they were offered a total of $11.8 million despite making $64.9 million in deposits, according to figures shared by Yotta’s co-founder and CEO. Adam Moelis.

CNBC spoke with a dozen customers who have found themselves in this situation, people who owe amounts ranging from $7,000 to well over $200,000.

From FedEx drivers to small business owners, teachers to dentists, they described the loss of years of savings after turning to fintechs like Yotta for the higher interest rates offered, for innovative features or because they were rejected by traditional banks.

One Yotta customer, Zach Jacobs, logged into Evolve’s website on Nov. 4 and discovered he was getting back just $128.68 of the $94,468.92 he had deposited — and he decided to take action.

The 37-year-old business owner in Tampa, Fla., began organizing with other victims online and created a board of volunteers for a group called Fight for our funds. It is his hope that they will get attention from the press and politicians.

So far, 3,454 people have signed up and said they’ve lost a total of $30.4 million.

“When you tell people about this, it’s like, ‘There’s no way this could happen,” Jacobs said. “A bank just robbed us. This is the first reverse bank robbery in American history.”

Andrew Meloan, a chemical engineer from Chicago, said he had hoped to get back the $200,000 he had deposited with Yotta. Earlier this month, he received an unexpected PayPal refund from Evolve for $5.

“When I signed up, they gave me an Evolve routing and account number,” Meloan said. “Now they say they only have $5 of my money, and the rest is somewhere else. I feel like I’ve been ripped off.”

Cracks in the system

Unlike meme stocks or crypto games, where the user naturally assumes some risk, most customers saw funds held in accounts backed by the Federal Deposit Insurance Corp. as the safest place to keep your money. People relied on accounts operated by Synapse for everyday expenses like buying food and paying rent, or to save for major life events like home purchases or surgeries.

Several people CNBC interviewed said the registration seemed like a good bet because Yotta and other fintechs advertised deposits as FDIC-insured through Evolve.

“We were assured that this was just a savings account,” Morris said during last week’s hearing. “We’re not risk takers, we’re not players.”

A Synapse contract that customers received after signing up for checking accounts stated that user money was insured by the FDIC for up to $250,000, according to a version seen by CNBC.

“According to the FDIC, no depositor has ever lost a penny of FDIC-insured funds,” the 26-page contract states.

“We are responsible”

Abandoned by US regulators who have so far declined to act, they are left with few clear options to get their money back.

In June, the FDIC passed it clear that its insurance fund does not cover the failure of non-banks such as Synapse, and that in the event of such a company’s failure it was not guaranteed to recover funds through the courts.

Next month, the Federal Reserve said that as Evolve’s primary federal regulator, it would monitor the bank’s progress “in returning all customer funds” to users.

“We are responsible for working to ensure that the bank operates in a safe and sound manner and complies with applicable laws, including laws that protect consumers,” Fed General Counsel Mark E. Van Der Weide said in a news release. letter.

In September, the FDIC proposed a new rule that would force banks to keep detailed records of customers of fintech apps, improving their chances of qualifying for coverage in a future disaster and reducing the risk of funds disappearing.

McWilliams, herself a former FDIC chairman during Trump’s first presidency, told the California judge handling the Synapse bankruptcy case last week that she was “disappointed” that every financial regulator has decided not to help.

The FDIC and Fed declined to comment for this story, and McWilliams did not respond to emails.

Winners and losers

Things hadn’t always seemed so dire. Early in the proceedings, McWilliams suggested to Judge Martin Barash that the customers receive a partial payment, which essentially spreads the pain among everyone.

But that would have required more coordination between Evolve and the other lenders that had customer funds than what ultimately happened.

As the hearings dragged on, the three other institutions, AMG National Trust, Lineage Bank and American Bank, began disbursing whatever funds they had, while Evolve took months to complete what it initially said would be a comprehensive settlement.

Around the time Evolve completed its efforts in October, it said it could only find out the user funds it had, not the location of the missing funds. That’s at least in part because of “very large bulk transfers” of funds without identification of who owned the money, a lawyer for Evolve testified last week.

As a result, the bankruptcy process has created relative winners and losers.

Some end users recently received all their money back, while others, like the Indiana FedEx driver Natasha Craftgot none, she told CNBC.

“Nothing Optimistic”

Evolve says the “vast majority” of funds held for Yotta and other customers were moved to other banks in October and November 2023 at the direction of Synapse, according to an Evolve spokesman.

“Where those end user funds went after that is an important question, but unfortunately not a single Evolve can answer with the information it currently has,” the spokesperson said.

Yotta says Evolve has not provided fintech companies and the trustee with any information about how it determined payouts, “despite admitting in court that there was a deficiency at Evolve before October 2023,” according to a spokesperson for the startup, who noted that several executives has recently left the bank. “We hope regulators pay attention and act.”

IN statements Released ahead of this month’s hearing, Evolve said other banks refused to participate in its efforts to create a ledger, while AMG and Lineage said Evolve’s suggestion that it had the missing funds was “irresponsible and disingenuous.”

As the banks and other parties hurl accusations at each other and lawsuits pile up, including pending class actions, the window for cooperation is closing quickly, Barash said last week.

“Over time, my impression is that unless the banks involved can sort this out voluntarily, it might not get resolved,” Barash said. “There is nothing optimistic about what I am telling you.”