Trustee says $85 million of clients’ savings are gone

There is an $85 million gap between fintech intermediary bank partners. Synapse are owned and what debt is owed to investors, according to the court-appointed trustee in the bankruptcy of Synapse.

Fintech clients who used Synapse to connect with banks had balances of $265 million. But the banks themselves only had $180 million tied to those accounts, trustee Elena McWilliams said in her report. report filed late Thursday.

The missing funds explain what lies at the heart of the worst crisis in the US financial technology sector since it emerged in the years following the 2008 financial crisis. More than 100,000 customers of various fintech companies were locked out of their savings accounts for nearly a month after the bankruptcy of Synapse, a company backed by Andreessen Horowitz. launchamid controversy over user balances.

Although Synapse and its partners, including Evoluv Bank and Trustleveled accusations against each other for mis-shifting balances or keeping the wrong books in court filings, McWilliams’ report is the first outside attempt to determine the extent of missing funds in the mess.

Since McWilliams was appointed trustee on May 24, he has worked with four banks — Evolve, American Bank, AMG National Trust and Lineage Bank — to reconcile their various ledgers so customers can regain access to their funds.

But banks need much more information to complete the project, including understanding how Synapse’s brokerage and lending business may have affected fund flows, McWilliams said. She said Synapse apparently pooled funds from multiple institutions, using multiple banks to service the same companies.

To make matters worse, it is still unclear what happened to the missing funds, she said.

“The source of the deficit, including whether end-user funds and negative balance accounts were moved between partner banks in a manner that increased or decreased the corresponding deficit that may have previously existed at each partner bank, is unknown at this time. . time,” McWilliams wrote.

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

McWilliams’ task has been made more difficult because she does not have the funds to pay outside forensic firms or even former Synapse employees to help her, she said in her report. On May 24, Synapse fired its last employee.

However, she said, some clients whose funds were kept at banks in so-called demand deposit accounts have already begun to access the accounts.

But users whose funds have been pooled together in a common way known as benefit accounts, or FBOs, will have a harder time getting their money. According to her, complete reconciliation will take several more weeks.

In her report, McWilliams presented Judge Martin Barash with several options for him to consider at Friday’s hearing that would 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 is to distribute the shortfall evenly among all clients to provide limited funds more quickly.

At the start of Friday’s public hearing, McWilliams told Barash that her recommendation was that all FBO customers receive partial payments, which would “partially mitigate the impact on end users who are currently waiting to have their funds blocked” while maintaining a reserve for subsequent payments.

But Barash’s comments cast doubt on how this will move forward.

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

The case represents “uncharted territory,” and because the investors’ funds were not Synapse’s property, Barasch said it was unclear what the bankruptcy court could do.

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