Fintech
The trustee says $85 million in customer savings is missing
Jelena McWilliams, president of the Federal Deposit Insurance Corporation (FDIC), during a Senate Committee on Banking, Housing and Urban Affairs hearing in Washington, DC, U.S., Tuesday, Aug. 3, 2021.
To the Dragon | Bloomberg | Getty Images
There is an $85 million shortfall between partner banks and fintech intermediaries Synapses they hold and what is due to the depositors, according to the appointed court trustee in the failure of Synapse.
Customers of fintech companies that used Synapse to connect with banks had balances of $265 million. But the banks themselves had only $180 million associated with those accounts, trustee Jelena McWilliams said in a statement. relationship filed Thursday evening.
The missing funds explain what the crux of the matter is the worst meltdown in the US fintech sector since its emergence in the years following the 2008 financial crisis. More than 100,000 customers of a diverse set of fintech companies were locked out of their savings accounts for nearly a month after the collapse of Synapse, a company backed by Andreessen Horowitz. to bootamid disagreements over user balances.
While Synapse and its partners, including Evolve Bank and Trusthave leveled accusations of improperly moving balances or keeping inaccurate records in court documents, McWilliams’ report is the first outside attempt to determine the extent of the missing funds in this mess.
Very unknown
Since being named trustee on May 24, McWilliams has worked with four banks – Evolve, American Bank, AMG National Trust and Lineage Bank – to reconcile their various records so customers could 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. He said Synapse apparently shuffled funds between different institutions, using multiple banks to service the same companies.
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 partner banks in a manner that increased or decreased respective deficits that may have existed at each partner bank at an earlier time, does not is known at the time,” McWilliams wrote.
McWilliams, former president of the Federal Deposit Insurance Corporation and current law firm partner Cravathdid not respond to requests for comment.
Spread the pain
McWilliams’ job has been made more difficult because there are no funds to pay outside forensics firms or even former Synapse employees to help them, she said in her report. Synapse laid off the last of its employees on May 24.
However, some customers whose funds were held at banks in so-called demand deposit accounts have already started to gain access to the accounts, he said.
But users whose funds have been pooled in a common way known as benefit-of accounts, or FBOs, will have a harder time getting their money. It will still take weeks to complete a full reconciliation, he said.
In his report, McWilliams presented Judge Martin Barash with several options to consider during Friday’s hearing that will allow at least some FBO customers to regain access to their funds.
Options include paying some customers in full, while delaying payments to others, depending on whether individual FBO accounts have been reconciled. Another option would be to distribute the shortfall equally among all customers to make limited funds available sooner.
McWilliams said she recommended that “funds be distributed to end users as quickly as possible following the status conference” on Friday.