Trustee says $85 million in customer savings missing

According to the court-appointed trustee in the bankruptcy proceedings of fintech intermediary Synapse, there is an $85 million shortfall between deposits held by Synapse’s partner banks and amounts owed to depositors.

Fintech clients who used Synapse to connect with the bank had balances of $265 million, but only $180 million was linked to accounts at the bank itself, trustee Jelena McWilliams said in a filing late Thursday.

The disappearance of funds illustrates the heart of the worst collapse of the U.S. fintech industry since its birth in the years following the 2008 financial crisis. More than 100,000 customers of various fintech companies have been unable to access their savings accounts for nearly a month after Andreessen Horowitz-backed startup Synapse collapsed over disagreements over user balances.

While Synapse and its partners, including Evolve Bank & Trust, have accused each other in court filings of improperly transferring balances and keeping inaccurate ledgers, McWilliams’ report is the first outside attempt to determine the extent of funds lost in the mess.

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

But the banks need more information to complete the project, including understanding how Synapse’s underwriters and lenders influenced the flow of funds, McWilliams said. Synapse appears to have used multiple banks to service the same companies and commingled funds among institutions, he said.

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

“The cause of the shortfalls is currently unknown, including whether end user funds and negative balance accounts were transferred between partner banks, increasing or decreasing respective shortfalls that may have previously existed at each partner bank,” McWilliams wrote.

McWilliams, a former president of the Federal Deposit Insurance Corp. and now a partner at law firm Cravath, did not respond to a request for comment.

McWilliams’s work has been complicated by a lack of funding to hire outside forensic firms or former employees of Synapse, which fired its last employees on May 24, the report said.

Still, some customers who had funds in what are known as current accounts at the bank have already started accessing their accounts, she said.

But users who pooled their funds in joint arrangements known as FBO accounts will have a harder time getting their money back, and it could take several more weeks for a full reconciliation to be completed, she said.

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.

Options could include paying some customers in full and delaying payments to others, depending on whether their individual FBO accounts have been reconciled. Another option would be to distribute the shortfall equally among all customers, making limited funds available sooner.

McWilliams said he recommended “distributing the funds to end users as promptly as possible following Friday’s status meeting.”