Trustee says $85 million missing in customer savings

There is an $85 million gap between partner banks and fintech intermediaries Synapse hold and what depositors owe, according to the appointed court trustee in Synapse’s bankruptcy.

Customers of fintech companies who used Synapse to connect with banks had a balance of $265 million. But the banks themselves had only $180 million linked to those accounts, trustee Jelena McWilliams said in a statement. report filed late Thursday.

The missing funds explain what is at the heart of the worst crisis in the US fintech sector since its emergence in the years following the 2008 financial crisis. More than 100,000 customers of a diverse group of fintech companies have been left without access for almost a month more to their savings accounts after the bankruptcy of Synapse, a company backed by Andreessen Horowitz. to startamid disagreements over user balances.

While Synapse and its partners, including Evolve Bank & Trusthave made allegations in court filings of improperly moving balances or maintaining improper ledgers, McWilliams’ report is the first outside attempt to determine the extent of the missing money in this mess.

Since being appointed trustee on May 24, McWilliams has worked with four banks – Evolve, American Bank, AMG National Trust and Lineage Bank – to reconcile their various ledgers so customers could regain access to their money.

But the banks need much more information to complete the project, including an understanding of how a Synapse brokerage and lending business may have affected cash flows, McWilliams said. She said Synapse apparently pooled funds from different institutions and used multiple banks to serve the same businesses.

What’s worse is that it’s still unclear what happened to the missing funds, she said.

“The source of the shortage, including whether end-user funds and negative balance accounts have been moved between partner banks in a manner that has increased or decreased the respective shortages that may have existed at each partner bank at a prior time, is at this moment unknown. time,” McWilliams wrote.

McWilliams, former chairman of the Federal Deposit Insurance Corporation and current partner at the law firm Cravatdid not respond to requests for comment.

McWilliams’ job has been made more difficult because there is no money to pay outside forensic firms or even former Synapse employees to help, she said in her report. Synapse laid off the last employees on May 24.

Still, some customers whose money was kept in banks in so-called demand deposit accounts have already been able to access accounts, she said.

But users whose money is pooled in a common way, known as benefit (FBO) accounts, will have a harder time getting their money. A full reconciliation will take weeks, she said.

In her report, McWilliams laid out several options that Judge Martin Barash could consider during a hearing on Friday that could allow at least some FBO customers to regain access to their funds.

Options include paying some customers in full while deferring payments to others, depending on whether individual FBO accounts are reconciled. Another option would be to distribute the shortage evenly among all customers, so that limited resources become available sooner.

At the start of Friday’s public hearing, McWilliams told Barash that her recommendation was that all FBO customers receive partial payments, which will “partially mitigate the impact on end users who are currently waiting without access to their funds,” while at the same time providing a reserve for later payments.

But comments from Barash cast doubt on how that would proceed.

While thanking McWilliams profusely for her work, the judge said he was “struggling” with “what I can do and how I can help.”

The case is “uncharted territory” and because the depositors’ funds were not owned by Synapse’s estate, Barash said it was not clear what the bankruptcy court could do.

“This is a crisis and I would like to see a solution, but I’m not sure if people are looking for injunctions, what I can provide in terms of injunctions,” Barash said.