Jelena McWilliams, chair of the Federal Deposit Insurance Corporation (FDIC), during a hearing of the Senate Committee on Banking, Housing and Urban Affairs in Washington, DC, USA, on Tuesday, August 3, 2021.
Al Drago | Bloomberg | Getty Images
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 that used Synapse to connect with banks had $265 million in balances, while the banks themselves had only $180 million linked to those accounts, trustee Jelena McWilliams said in a 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.
Much unknown
Since being appointed trustee on May 24, McWilliams has worked with four banks – Evolve, American Bank, AMG National Trust and Lineage Bank – in an effort 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. Synapse apparently dispersed funds to different institutions, using multiple banks to serve the same businesses, she said.
What's worse is that it's still unclear what happened to the missing funds, she said.
“The source of the shortfall, 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 shortfalls that may have existed at each partner bank at a prior time, is at this time unknown. ,” wrote McWiliams.
McWilliams, former FDIC chairman and current partner at the law firm Cravatdid not respond to requests for comment.
Spreading the pain
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 FBO or For Benefit Of accounts, will have a harder time getting their money. A full reconciliation will take weeks, she said.
In her report, McWilliams presented 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.
McWilliams said her recommendation was that “funds be distributed to end users as soon as possible after the status conference” on Friday.
