Administrator says $85 million in savings for customers is missing

According to the court-appointed trustee in Synapse's bankruptcy, there is an $85 million shortfall between what fintech broker Synapse's partner banks have and what depositors are owed.

Customers of fintech companies that used Synapse to connect with banks had $265 million in balances, while the banks themselves only had $180 million associated with those accounts, trustee Jelena McWilliams said in a report filed on Thursday night.

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

While Synapse and its partners, including Evolve Bank & Trust, have leveled accusations of improperly moving balances or maintaining incorrect accounting books against each other in court filings, McWilliams' report is the first outside attempt to determine the extent of the missing funds. in this mess.

Since being named administrator on May 24, McWilliams has worked with four banks (Evolve, American Bank, AMG National Trust and Lineage Bank) in an attempt to reconcile their various ledgers so that clients can regain access to their funds. .

But banks need much more information to complete the project, including understanding how a Synapse brokerage and lending business may have impacted fund flows, McWilliams said.

What's worse, it's still unclear what happened to the missing funds, he said.

“The source of the deficit, including whether end-user funds and negative balance accounts were moved between the partner banks in a manner that increased or decreased the respective deficits that may have existed at each partner bank at a previous time, does not is known at this time,” McWiliams wrote.

McWilliams, former FDIC chairman and current partner at the Cravath law firm, did not respond to requests for comment.

McWilliams' task has become more difficult because there are no funds to pay outside forensic companies or even former Synapse employees to help, he said in his report. Synapse laid off the last of its employees on May 24.

Still, some customers whose funds were deposited with banks in what are called demand deposit accounts have already begun to access the accounts, he said.

But users whose funds were pooled in a community-based manner known as FBO, or benefit-from, accounts will have a harder time getting their money. A full reconciliation will take weeks more to complete, he said.

In his report, McWilliams presented several options for Judge Martin Barash to consider at a hearing on Friday that will allow at least some FBO clients to regain access to their funds.

Options include paying some customers in full and delaying payments to others, depending on whether individual FBO accounts have been reconciled. Another option would be to distribute the shortfall evenly among all customers so that limited funds are available sooner.

McWilliams said his recommendation was that “funds be distributed to end users as soon as possible after the status conference” on Friday.