Jelena McWilliams, chairman of the Federal Deposit Insurance Corporation (FDIC), during a Senate Banking, Housing, and Urban Affairs Committee considering in Washington, D.C., U.S., on Tuesday, Aug. 3, 2021.
Al Drago | Bloomberg | Getty Images
There is an $85 million shortfall between what companion banks of fintech middleman Synapse are holding and what depositors are owed, according to the court-appointed trustee in the Synapse bankruptcy.
Buyers of fintech firms that used Synapse to link up with banks had $265 million in balances. But the banks themselves only had $180 million associated with those accounts, trustee Jelena McWilliams swayed in a report filed late Thursday.
The missing funds explain what is at the heart of the worst meltdown in the U.S. fintech sector since its materialization in the years after the 2008 financial crisis. More than 100,000 customers of a diverse set of fintech companies receive been locked out of their savings accounts for nearly a month after the failure of Synapse, an Andreessen Horowitz-backed startup, surrounded by disagreements over user balances.
While Synapse and its partners, including Evolve Bank & Trust, have shied accusations of improperly moving balances or keeping incorrect ledgers at each other in court filings, McWilliams’ disclose is the first outside attempt to determine the scope of missing funds in this mess.
Much unknown
Since being named trustee on May 24, McWilliams has worked with four banks — Evolve, American Bank, AMG Resident Trust and Lineage Bank — to reconcile their various ledgers so customers could regain access to their greens.
But the banks need much more information to complete the project, including understanding how a Synapse brokerage and lending task may have impacted fund flows, said McWilliams. She said Synapse apparently commingled funds among a handful institutions, using multiple banks to serve the same companies.
What’s worse, it’s still unclear what chanced to the missing funds, she said.
“The source of the shortfall, including whether end-user funds and negative balance accounts were moved aggregate Partner Banks in a way that increased or decreased the respective shortfalls that may have existed at each Partner Bank at an earlier schedule, is not known at this time,” McWilliams wrote.
McWilliams, former chair of the Federal Deposit Insurance Corporation and tendency partner at the law firm Spreading the pain
McWilliams’ task has been made harder because there are no funds to pay exotic forensics firms or even former Synapse employees to help, she said in her report. Synapse fired the last of its workers on May 24.
Still, some customers whose funds were held at banks in what’s called demand deposit accounts take already begun getting access to accounts, she said.
But users whose funds were pooled in a communal way skilled in as for benefit of, or FBO, accounts, will have a harder time getting their money. A full reconciliation will through weeks more to complete, she said.
In her report, McWilliams presented several options for Judge Martin Barash to over at a Friday hearing that will allow at least some FBO customers to regain access to their funds.
The alternatives include paying some customers out fully, while delaying payments to others, depending on whether the individual FBO accounts partake of been reconciled. Another option would be spreading the shortfall evenly among all customers to make limited wherewithals available sooner.
‘This is a crisis’
At the start of the public hearing on Friday, McWilliams told Barash that her advice was that all FBO customers receive partial payments, which “will partially alleviate the effects to end users who are currently intermission locked out of access to their funds” while keeping a reserve for later payments.
But comments from Barash inclination doubt on how that would move forward.
While profusely thanking McWilliams for her work, the judge said that he “contended” with “what I can do, and how I can help.”
The case is “uncharted territory” and because the depositors’ funds weren’t the property of the Synapse class, Barash said it wasn’t clear what the bankruptcy court could do.
“This is a crisis, and I would like to see a tenacity, but I’m not sure if people are looking for court orders, what I can provide in terms of court orders,” Barash said.