Jelena McWilliams, chairwoman of the Federal Deposit Insurance Corporation (FDIC), during a Senate Banking, Housing and Urban Affairs Committee hearing in Washington, DC, United States, on Tuesday, May 3 August 2021.
Al Drago | Bloomberg | beautiful images
There is an $85 million shortfall among the fintech intermediary’s partner banks Synapse held and what the depositor must pay, as determined by the court trustee in the Synapse bankruptcy case.
Customers of fintech companies use Synapse to connect with banks with balances of $265 million. But the banks themselves only have $180 million associated with those accounts, trustee Jelena McWilliams said in a report. report submitted by the end of Thursday.
The missing amount explains the core of worst crisis in the US fintech sector since it emerged in the years following the 2008 financial crisis. More than 100,000 customers of multiple fintech companies had their savings accounts locked out for nearly a month after the Synapse debacle , a company backed by Andreessen Horowitz. start upamid disagreements over user balances.
While Synapse and its partners, incl Bank & trust developmenthas made allegations of improperly moving balances or keeping inaccurate ledgers together in court filings, McWilliams’ report is the first outside effort to determine the scope of the missing funds in this mess.
Many things are unknown
Since being appointed as trustee on May 24, McWilliams has been working with four banks – Evolve, American Bank, AMG National Trust and Lineage Bank – to reconcile their various ledgers for clients to see. Customers can regain access to their funds.
However, McWilliams said banks need more information to complete the project, including understanding how Synapse lending and brokerage activity may impact capital flows. She said Synapse apparently mixed funds between several entities, using multiple banks to service the same company.
What’s worse is that it’s still unclear what happened to the missing money, she said.
“The source of the shortfall, including whether end user funds and negative balance accounts are transferred between Partner Banks in a manner that increases or reduces the respective shortfall that may exist at each Bank Partner at an earlier date is currently unknown,” McWilliams wrote.
McWilliams, former chairman of the Federal Deposit Insurance Corporation and current partner at the law firm Cravathdid not respond to a request for comment.
Spread the pain
In her report, she said McWilliams’ task became increasingly difficult because there was no money to pay outside forensics firms or even former Synapse employees to help. Synapse laid off its last employee on May 24.
However, she said, some customers whose money is held at the bank in so-called demand deposit accounts have begun to have access to the accounts.
But users whose funds are pooled in what is commonly known as a for-profit account, or FBO, will have a harder time getting their money. Full reconciliation will take many more weeks to complete, she said.
In his report, McWilliams presented several options for Judge Martin Barash to consider at Friday’s hearing that would allow at least some FBO customers to regain access to their funds. .
Options include paying some customers in full, while deferring payment to others, depending on whether individual FBO accounts have been reconciled. Another option is to spread the shortfall equally among all customers to make the limited amount available sooner.
‘This is a crisis’
At the start of the public hearing on Friday, McWilliams told Barash that her recommendation is that all FBO customers receive partial payments, which “will alleviate some of the impact on users end are currently waiting to have access to their funds locked” while keeping reserves intact for future payments.
But comments from Barash cast doubt on how that will progress.
While thanking McWilliams profusely for her work, the judge said he “struggled” with “what I can do and how I can help.”
The case is “uncharted territory” and because depositors’ money is not an asset of the Synapse estate, Barash said it’s unclear what the bankruptcy court could do.
“This is a crisis and I want to see a solution, but I’m not sure if people are looking for a court order, what I can provide is in the form of a court order,” Barash said. .
