US Trustee Calls for Liquidation of Troubled Fintech Synapse Through Chapter 7 Bankruptcy, Alleges ‘Gross Mismanagement’

Troubled banking-as-a-service startup Synapse is facing even more challenges this week as a United States Trustee has filed an emergency motion to convert the company’s debt reorganization Chapter 11 bankruptcy into a liquidation Chapter 7. The trustee cited Synapse’s mismanagement of its estate and the lack of a reasonable likelihood of reorganization as reasons for the motion.

Synapse, founded in 2014 by Bryan Keltner and Sankaet Pathak, filed for Chapter 11 bankruptcy in April and announced that its assets would be acquired by TabaPay. However, the planned purchase fell apart in May, leading to further disputes between Synapse, its partners, and creditors.

Evolve Bank & Trust, one of Synapse’s banking partners, alleged that Synapse abruptly cut off access to its computer systems, leading to frozen end user accounts. The U.S. Trustee criticized Synapse for its actions, stating that they had “grossly mismanaged the estate” and caused harm to depositors.

Despite the ongoing turmoil, there is still hope for a resolution. In a recent creditor committee meeting, it was suggested that fintech clients of Synapse could provide funding to help the company continue operating in Chapter 11.

The situation is set to escalate further as a hearing for the U.S. Trustee’s emergency motion is scheduled for May 17. Synapse has admitted to having no more cash or approval to use any cash after that date.

With over $50 million in venture capital raised from investors like Andreessen Horowitz, Trinity Ventures, and Core Innovation Capital, the collapse of Synapse represents a significant setback for the fintech industry. TechCrunch has reached out to Synapse for comment, and the story continues to unfold as the company’s future hangs in the balance.