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Envestnet was sanctioned in a Delaware federal court last week for destroying evidence that might have supported accusations made by a former fintech partner in an ongoing lawsuit.
The decision by Judge Jennifer L. Hall in U.S. District Court in Delaware means that FinancialApps’ case against Envestnet (and its former subsidiary Yodlee) can proceed to trial.
Hall’s decision on Dec. 30 affirms the prior court order filed by Chad S.C. Stover, who Hall appointed as special master to look into FinancialApps’ allegations against Envestnet (a special master is an individual appointed to conduct a particular task for the court).
According to prior court records, Envestnet approached FinApps in 2016 to license its product, “Risk Insight,” which helps financial institutions determine whether to lend money to credit applicants.
By 2019, FinApps allegedly reached out to Yodlee regarding delinquent payments, and the firm began to suspect that Envestment/Yodlee might steal their technology to create their own product. FinApps sent a cease-and-desist letter in May before terminating the contract and filed a lawsuit in July 2019, claiming that Envestnet had stolen the firm’s trade secrets.
In 2024, FinApps claimed that Envestnet had lost or destroyed evidence that could have proven FinApps’ allegations.
According to FinApps, shortly after filing their complaint, Envestnet/Yodlee canceled its subscription for Papertrail, a third-party logging app touting itself as a “flight data recorder.” The subscription would include detailed data on whether Envestnet accessed Risk Insight functionality data and whether that data was copied from the system.
FinApps claimed that the data automatically deleted when Envestnet cancelled the subscription, despite orders from Envestnet/Yodlee counsel that employees should retain data that could be evidence.
According to Stover’s report, even if Envestent hadn’t known the data was relevant (and he believes they did know), they “acted unreasonably” by not conferring with FinApps’ counsel before cancelling the subscription.
Stover also argued there was “no substitute” for the Papertrail data, and that a future jury should be allowed to presume that the data would have been unfavorable for Envestnet’s case.
Last week, Hall agreed with Stover, writing in the court order that Envestnet’s cancellation days after it sued shows an “intent to deprive,” and that she didn’t believe Envestnet’s claim that the cancellation was to reduce costs, noting that the monthly fee to retain the subscription (and thus the data) was “negligible.”
In a statement about the decision, Marc Kasowitz, FinApps’ lead trial counsel, said the decision holds “Envestnet and Yodlee accountable for their intentional destruction of highly relevant evidence,” and that the firm looked forward to finally bringing the case to trial.
Envestnet declined to comment, with a spokesperson stating the firm doesn’t comment on pending litigation as a matter of policy.
Bain Capital acquired Envestnet in 2024, while private equity firm STG Capital now owns Yodlee.
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