A group of senators has banded together to urge Synapse’s owners and bank and fintech partners to “immediately restore customers’ access to their money.” As part of their demands, the senators implicated both the partners and investors of the company as being responsible for missing customer funds.

In a letter shared publicly on Monday, U.S. Senator Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, along with Senators Ron Wyden (D-OR), Tammy Baldwin (D-WI), and John Fetterman (D-PA) pointed out that customers of companies that partnered with banking-as-a-service startup Synapse have not been able to access their money since mid-May. 

The letter was addressed to  W. Scott Stafford, president and CEO of Evolve Bank & Trust, but was also sent to major investors in Synapse, as well as to the company’s principal bank and fintech partners. Recipients include former Synapse CEO Sankaet Pathak; venture firms Andreessen Horowitz, Core Innovation Capital, and Trinity Ventures; American Bank; AMG National Trust; Trust and Lineage Bank; and fintech companies Copper, Juno, Mercury, Yieldstreet and Yotta.

San Francisco-based Synapse operated a service that allowed others (mainly fintechs) to embed banking services into their offerings. For instance, a software provider that specialized in payroll for 1099 contractor-heavy businesses used Synapse to provide an instant payment feature; others used it to offer specialized credit/debit cards. Until last year, it was providing those types of services as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury until Evolve and Mercury decided to work directly with each other and cut out Synapse as a middleman.

Synapse raised a total of just over $50 million in venture capital in its lifetime, including a 2019 $33 million Series B raise led by Andreessen Horowitz’s Angela Strange. The startup wobbled in 2023 with layoffs and filed for Chapter 11 in April of this year, hoping to sell its assets in a $9.7 million fire sale to another fintech, TabaPay. But TabaPay walked. It’s not entirely clear why. Synapse threw a lot of blame at Evolve and at Mercury, both of whom raised their hands and told TechCrunch they were not responsible. Synapse CEO and co-founder Sankaet Pathak is no longer responding to our requests for comment.

As a result, Synapse was pressured to file for Chapter 7 bankruptcy in May, liquidating its business entirely. Customers have been frozen out ever since. 

Government officials weren’t letting fintech partners off easily, citing them for their role in the situation. 

In their letter, the senators said that it was the responsibility of all the various players – including the VCs who had backed them – “to ensure the safety and accessibility of end user funds.”

They urged them all to collectively work together to immediately make available all customer deposits currently frozen by the Synapse bankruptcy.

Specifically, they wrote: “Each of you is responsible for the customers who have been frozen out of their accounts. Consumer-facing fintech firms marketed their products to the public as safe, reliable alternatives to banks. Because of those promises, consumers adopted their products and made deposits through their apps and websites. Venture capital firms funded Synapse without insisting on adequate controls to protect consumers. They stood to profit while Synapse billed itself as a trustworthy financial infrastructure provider. But they failed to make sure that Synapse could follow through on its commitments. Banks joined with Synapse in an effort to find new revenue streams. These partnerships further made it possible for Synapse to market services ultimately provided by the banks.”

The Senators also expressed concern and being disturbed by “the potential shortfall of $65 to $96 million between what consumers are owed and the funds held on their behalf by Synapse’s partner banks,” calling it “both deeply troubling and completely unacceptable.”

They added: “In due time we will find out who is ultimately responsible for this mess, but in the interim, the priority must be to restore consumers’ access to all of their money.”

In their letter, the Senators also took a stab at the banking-as-a-service model as a whole, saying the Synapse bankruptcy “has exposed the inherent weaknesses of this tri-party business model and caused hardworking Americans and small businesses to be deprived access to their own money.”

This past week has been full of drama in the banking-as-a-service world. On June 26, Evolve Bank announced that it had been victim of a cyberattack and data breach that could have affected its partner companies as well. The incident, according to the company, involved “the data and personal information of some Evolve retail bank customers and financial technology partners’ customers” such as Affirm, Mercury, Bilt, Alloy and Stripe. On June 29, fintech company Wise announced that some of its customers’ personal data may have been stolen in the data breach. Also last week, Thread Bank – a popular partner to BaaS startups such as Unit – got hit with enforcement action from the FDIC. Notably, the order issued to Thread, as the publication Paymnts pointed out, “is unique in that it explicitly calls out the bank’s Banking-as-a-Service (BaaS) and Loan-as-a-Service (LaaS) programs.”

TechCrunch has reached out to both Evolve Bank and former Synapse CEO Sankaet Pathak for comment. Evolve declined to comment.

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