Court sanctions Envestnet, Yodlee for destroying evidence in trade secret case

Envestnet and Yodlee face sanctions after a federal court found the fintech companies destroyed critical evidence in a trade secret case.

The December 30, 2025 ruling by United States District Judge Jennifer L. Hall in Delaware allows a jury to presume the deleted data would have been unfavorable to the defendants—a significant development in the ongoing litigation.

FinancialApps, LLC originally brought forth the lawsuit in 2019 alleging that Envestnet and Yodlee misused its Risk Insight software to develop a competing product. Central to the dispute are Papertrail ESI logs, electronic records that would have shown who accessed the software and what they did during the period when the competing product was being developed.

According to the court, the defendants destroyed those logs just six days after being sued. The monthly cost to preserve the data was negligible.

Special Master Chad S.C. Stover found the logs were relevant to the trade secret misappropriation claims. If FinancialApps' allegations were true, the Papertrail logs would have likely been "some of the best evidence of that misuse," he wrote. If the defendants did nothing wrong, the logs would have likely cleared them.

The defendants pushed back on three fronts. They argued circumstantial evidence alone could not prove intent to spoliate. Judge Hall disagreed, noting that intent is commonly proven with circumstantial evidence, even in criminal cases with higher burdens of proof.

They also claimed the evidence did not demonstrate bad faith, and that the Papertrail cancellation was done to reduce costs. The court rejected both arguments.

Envestnet separately argued it should not face sanctions. Judge Hall was unpersuaded. She clarified that Envestnet was not being held responsible merely because it owns Yodlee. Rather, Envestnet was involved in the decision to destroy the evidence, triggering Federal Rule of Civil Procedure 37(e).

The sanction permits evidence of the spoliation to be presented at trial. The jury may—but is not required to—presume the destroyed records would have been unfavorable to the defendants. The parties must submit a proposed jury instruction addressing this issue.

The defendants also sought sanctions against FinancialApps over a missing document called the Dye NDA. Judge Hall declined, finding no evidence the plaintiff lost or destroyed it intentionally or in bad faith. She noted the defendants' real argument seems to be that the document never existed—a point they can raise at trial, but not through spoliation sanctions.

The parties must file a joint status report by January 20, 2026, setting forth their positions on how the case should proceed.

"As a matter of policy, Envestnet, Inc. does not comment on pending litigation," a spokespreson for Envestnet told InvestmentNews when reached for comment.

For fintech firms and wealth management technology providers, the ruling serves as a reminder of the importance of evidence preservation. Destroying records after litigation begins—even under the guise of cost reduction—can have serious consequences at trial.

(Editorial note: This story has been updated to include comment from Envestnet and added background detail to the case.)