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US trustee wants troubled fintech Synapse liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

The outlook for Synapse, a struggling banking-as-a-service startup, went from bad to worse this week after a U.S. trustee filed an emergency request on Wednesday.

The trustee is seeking to convert the company’s debt restructuring Chapter 11 bankruptcy into a Chapter 7 liquidation, according to court documents.

The trustee wrote that the need for Chapter 7 resulted from the fact that Synapse had “grossly” mismanaged its estate, such that losses continued with little “reasonable likelihood of reorganization” that would allow the company to emerge from bankruptcy. ‘other side and continue.

This new development is significant because Synapse founder Sankaet Pathak claimed earlier this month that his former partners owe him millions, according to his own accounting, and are not paying. These partners insisted that Synapse’s allegations had “no merit.”

San Francisco-based Synapse, which operated a platform for banks and fintech companies to develop financial services, was founded in 2014 by Bryan Keltner and Pathak. It provided these types of services as an intermediary between banking partner Evolve Bank & Trust and business banking startup Mercury, among others.

Synapse filed for Chapter 11 bankruptcy on April 22 and, at the same time, announced that its assets would be acquired by TabaPay.

But on May 9, TechCrunch reported that TabaPay’s planned purchase of Synapse’s assets for $9.7 million had collapsed. At the time, Synapse said the problem was with its banking partner Evolve Bank & Trust. Evolve alleged that it was not involved in the sale and was not responsible. Mercury also claimed that Synapse’s allegations that it was owed money had “no merit.”

But infighting between the companies continued. On May 13, Evolve Bank & Trust filed a motion seeking an order restoring access to Synapse’s dashboard system after alleging that it was denied access to the startup’s computer systems and that it had been forced to freeze end-user accounts.

The US attorney alleged, according to court documents, that Synapse “inexplicably cut off access to its computer systems over a weekend.”

“Although disputes exist between the parties, there appears to be no reasonable explanation why the Debtor (Synapse) cut off access to its computer systems and, indeed, the Debtor has since stated that full access had been restored. It seems indisputable that these actions played a significant role in end users losing access to their funds. At a minimum, an independent trustee is needed to see if a resolution can be reached that minimizes further harm to depositors. For all of these reasons, the debtor has grossly mismanaged the estate and there are many reasons to convert this case to Chapter 7.”

Synapse admitted that it “no longer had cash or permission to use cash after Friday, May 17.”

A hearing is scheduled for the U.S. Trustee’s emergency motion on May 17.

It remains to be hoped that the procedure can continue without further shenanigans. At a creditors committee meeting held on May 15, shared on LinkedIn by Fintech Business Weekly’s Jason Mikula, “it was suggested that Synapse’s fintech clients could provide some sort of financing to the company to allow it to continue operating in Chapter 11. probably in an attempt to resolve disruptions for end users.

TechCrunch has contacted Evolve and Synapse for comment.

The previous purchase price of $9.7 million was significantly lower than the more than $50 million in venture capital that Synapse had raised from investors such as Andreessen Horowitz, Trinity Ventures and Core Innovation Capital over the time.


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