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

Troubled Banking-as-a-Service Startup Synapse Faces Chapter 7 Liquidation Motion

The future of banking-as-a-service startup Synapse is in jeopardy as the company faces a potential conversion of its Chapter 11 bankruptcy into a Chapter 7 liquidation. The United States Trustee has filed an emergency motion citing gross mismanagement of the company’s estate, with little hope of reorganization.

Synapse, founded in 2014, provided a platform for banks and fintech companies to develop financial services. However, recent disputes with former partners have escalated, leading to the current crisis. The planned acquisition of Synapse’s assets by TabaPay fell through, and allegations of owed money have been denied by the partners involved.

The situation worsened when Synapse cut off access to its computer systems, causing disruptions for end users. The U.S. Trustee has called for a conversion to Chapter 7 bankruptcy, citing the need for an independent fiduciary to minimize harm to depositors.

Despite the turmoil, there is a glimmer of hope as fintech clients of Synapse may provide funding to keep the company operating. A hearing on the emergency motion is scheduled for May 17, with the outcome uncertain.

The unraveling of Synapse’s financial troubles highlights the challenges faced by startups in the fintech industry. With millions in venture capital raised from top investors, the company’s downfall serves as a cautionary tale for the sector. TechCrunch has reached out to Synapse for comment, but the future remains uncertain for the troubled startup.

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