Yotta Technologies has alleged that Evolve Bank & Trust misappropriated millions of dollars in customer funds and lied to cover up its Ponzi scheme, the fintech said in a new lawsuit filed Wednesday.
Last month, Judge Trina Thompson of the U.S. District Court for the Northern District of California dismissed Yotta’s earlier lawsuit, filed in September, claiming Evolve, its former banking partner, had stolen and failed to give access to over $100 million in customer funds. She noted the fintech “did not sufficiently plead the ‘who, what, when, where, and how’” of the alleged mismanagement by Evolve and its now bankrupt middleware partner Synapse, which filed for bankruptcy in April 2024.
Thompson ordered Yotta to provide more details in an amended complaint by June 2.
Yotta filed an amended lawsuit with fresh accusations Wednesday.
“This is a case about a bank that 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 scheme,” Yotta said in its Wednesday lawsuit.
Yotta is suing Evolve, alleging fraud, conspiracy to commit fraud, negligent misrepresentation, violation of California’s Unfair Competition Law, and restitution based on unjust enrichment.
Evolve declined to comment on active litigation.
Evolve, for its part, has asserted that the majority of customer funds have been disbursed.
Evolve is involved in ongoing litigation regarding negligence in monitoring and the mismanagement of funds associated with the collapse of Synapse.
Fintech Yotta built software to help customers save money and better manage their finances. Since it’s not a bank, it partnered with Evolve to provide banking services as the end users’ bank. Evolve, meanwhile, partnered with Synapse, to keep records of transactions and balances and report those to Yotta end users.
Evolve processed banking transactions such as deposits, withdrawals, debit card usage, and ACH and wire transfers for the end users, and provided data reflecting these transactions to Synapse, which would organize, tabulate and present this data through a database, the lawsuit noted.
After Synapse went bankrupt, Jelena McWilliams, the former Federal Deposit Insurance Corp. chair-turned-bankruptcy trustee, found a shortfall of between $65 million and $95 million in customers' funds to be “missing.”
“Evolve acknowledges – but does not explain – that a substantial amount of customer money is missing,” Yotta argued.
“Where did the money go? Yotta’s investigation indicates that Evolve simply stole it,” the plaintiff claims. “In violation of its representations to Yotta and end users, responsible banking practices, and basic morality, Evolve stole more than $75 million from end users.”
Evolve debited more than $25 million, long before Synapse’s collapse, according to the bankrupt fintech’s records. However, those transactions were not authorized by customers and Evolve failed to inform Yotta customers about these transactions, though Evolve and Synapse had claimed that they reported all transactions involving customer funds.
“They also inflated the account balances that they reported to Yotta and its customers to make it appear as if the misappropriated funds remained in customers’ accounts,” the lawsuit said.
In October 2023, Evolve Bank modified its connection to one of its largest fintech customers, Mercury Technologies, switching from an indirect connection through Synapse to a direct connection with Evolve. This would help Evolve “capture the profit” that Synapse benefited from as an intermediary, the plaintiff noted.
Before the migration, Evolve held roughly $3.2 billion of Mercury customers' funds and $500 million of other fintech customers' funds in “commingled ‘for benefit of’ accounts, according to Yotta. The migration allegedly resulted in Mercury and its users receiving almost $50 million more than they were entitled to, creating a shortfall for other fintech customers. By September 2023, Evolve was reportedly aware of a deficit in all fintech accounts connecting through Synapse, yet proceeded with the Mercury migration.
Evolve transferred funds that should have belonged to other customers, like Yotta, to Mercury's end users, forcing smaller fintechs to absorb the shortfall, the complaint said.
“Evolve was aware of a shortfall prior to migrating Mercury off of Synapse to Evolve directly. They took funds from other platforms' customers to achieve this and make Mercury whole at the expense of everyone else,” a source close to the situation told Banking Dive, noting Yotta added specifics the judge asked for.
However, on or about May 11, 2024, Evolve suspended access to all funds belonging to Yotta customers and sent a notice saying that “Synapse has taken the action of turning off system access for Evolve,” which has limited its visibility into activity related to Yotta’s program.
“For these reasons, and to maintain the integrity and security of end user accounts, Evolve will need to immediately freeze any activity that it believes may be related to Synapse Brokerage, including but not limited to any debit or credit cards issued by Evolve.”
Yotta is seeking litigation costs and expenses, damages and further relief the court deems proper.
“Evolve’s conduct caused Yotta’s business to lose essentially all value,” according to the lawsuit.
The bank’s conduct “has been intentional, deliberate, willful, malicious, reckless, and conducted in callous disregard of the rights of Yotta, entitling Yotta to punitive damages,” the plaintiffs contended.
