Jelena McWilliams, chairwoman of the Federal Deposit Insurance Corporation (FDIC), during a hearing of the Senate Committee on Banking, Housing and Urban Affairs in Washington, D.C., U.S., Tuesday, August 3, 2021.
Al Drago | Bloomberg | Getty Images
There is an $85 million shortfall between partner banks and fintech intermediaries Synapse according to the designated court trustee in bankruptcy of Synapse.
Customers of fintech companies that used Synapse to connect with banks had balances of $265 million. But the banks themselves only had $180 million tied to those accounts, receiver Jelena McWilliams said in her statement. report submitted overdue on Thursday evening.
Missing funds explain what’s at the heart of the worst downturn in the U.S. fintech sector since its inception in the years after the 2008 financial crisis. More than 100,000 customers of various fintech companies were left without access to their savings accounts for almost a month after the collapse of Synapse, a company backed by Andreessen Horowitz activationamid confusion over user balances.
Although Synapse and its partners including Evolve Bank and Trust Fundhave leveled accusations of improperly shifting balances or keeping incorrect records of each other in court filings, the McWilliams report is the first outside attempt to determine the scope of missing funds in this mess.
Much unknown
Since McWilliams was appointed as trustee on May 24, he has worked with four banks — Evolve, American Bank, AMG National Trust and Lineage Bank — to reconcile their different books of accounts so that 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 activities may have impacted fund flows, McWilliams said. She said Synapse apparently pooled funds between several institutions, using multiple banks to service the same companies.
Worse still, it is still unclear what happened to the missing funds, she added.
“The source of the shortfall, including whether end-user funds and negative balance accounts were transferred between Partner Banks in a way that increased or reduced relevant shortfalls that may have previously existed at each Partner Bank, is unknown at this stage. time,” McWilliams wrote.
McWilliams, former president of the Federal Deposit Insurance Corporation and current law firm partner Tiedid not respond to requests for comment.
Spreading the pain
McWilliams’ task has been made more hard, she said in her report, because she doesn’t have the resources to pay for assist from outside forensics firms or even former Synapse employees. On May 24, Synapse fired its last employee.
Nevertheless, some customers whose funds were kept in banks on the so-called demand deposit accounts, they have already started gaining access to the accounts, she added.
However, users whose funds are pooled together, called benefit accounts, or FBOs, will have a harder time getting their money. Full reconciliation will take more weeks, she added.
In her report, McWilliams presented Judge Martin Barash with several options to consider at Friday’s hearing that would allow at least some FBO customers to regain access to their funds.
Options include full payment for some customers and delaying payment for others, depending on whether individual FBO accounts have been agreed. Another option would be to spread the shortfall evenly across all customers to make limited funds available earlier.
“It’s a crisis”
At the start of the public hearing on Friday, McWilliams told Barash that her recommendation was for all FBO customers to receive partial payments, which would “partially alleviate the impact on end users who are currently waiting for access to their funds to be blocked,” while still maintaining a cushion for later payments.
However, Barash’s comments cast doubt on the further development of this situation.
While warmly thanking McWilliams for her work, the judge said she was “struggling” with “what I can do and how I can assist.”
The case is “uncharted territory,” and because the depositors’ funds were not property of the Synapse estate, Barash said it was unclear what the bankruptcy court could do.
“It’s a crisis and I’d like to see a solution, but I’m not sure people want injunctions, which I can provide with injunctions,” Barash said.