Trustee says clients saved $85 million

There is an $85 million shortfall between the funds held by fintech middleman Synapse’s partner banks and what depositors are owed, according to Synapse’s court-appointed bankruptcy trustee.

Trustee Jelena McWilliams said in a report filed late Thursday that customers of fintech companies that use Synapse to connect with banks have $265 million in balances, while the banks themselves have only $180 million tied to those accounts.

The missing money explains the core reasons behind the worst collapse of the U.S. fintech industry since it emerged in the years following the 2008 financial crisis. After Andreessen Horowitz-backed startup Synapse collapsed, more than 100,000 customers of multiple fintech companies were locked out of their savings accounts for nearly a month amid disagreements over user balances.

While Synapse and its partners, including Evolve Bank & Trust, have accused each other in court filings of improperly transferring balances or keeping incorrect books on each other’s books, McWilliams’ report is the first outside attempt to determine the scope of the missing funds in the mess. .

Since being appointed trustee on May 24, McWilliams has been working with four banks – Evolve, American Bank, AMG National Trust and Lineage Bank – trying to reconcile their various books so customers can regain access to their funds.

But McWilliams said the bank needed more information to complete the project, including understanding how Synapse’s brokerage and lending operations might affect the flow of funds.

To make matters worse, she said, it’s unclear where the missing funds went.

“It is unclear where the shortfall came from, including whether end-user funds and negative balance accounts were transferred between partner banks, thereby increasing or decreasing each partner bank’s respective shortfalls that may have previously existed,” McWilliams wrote. .

Mike Williams, the former FDIC chairman and current partner at the Cravath law firm, did not respond to a request for comment.

McWilliams said in the report that her task was made more difficult because there were no funds to pay for help from outside forensics firms or even former Synapse employees. Synapse laid off its last employee on May 24.

Still, she said, some customers whose funds were held in the bank’s so-called checking accounts have begun using the accounts.

But if users’ funds are pooled in a public account (called “FBO” or “For Benefit Of”), it will be difficult for them to get their money. She said a full settlement would still be weeks away.

In his report, McWilliams laid out several options for Judge Martin Barash to consider at Friday’s hearing that would allow at least some FBO clients to regain access to their funds.

These options include paying some customers in full while deferring payments to others, depending on whether individual FBO accounts have been reconciled. Another option is to spread the gap evenly among all clients to make limited funds available more quickly.

McWilliams said her recommendation would be to “distribute funds to end users as quickly as possible following Friday’s status meeting.”