Synapse Bankruptcy Trustee Reports $85M Missing in Fintech Collapse

Boston Brand Media brings you the latest news - Synapse bankruptcy trustee has reported $85 million missing amid the fintech firm's collapse. This revelation highlights severe financial mismanagement and raises concerns over the company's operations and oversight. The missing funds exacerbate the firm's troubles, impacting creditors and stakeholders as the investigation continues.

Boston Brand Media provides the Key Highlights:

1. The court-appointed trustee in the Synapse bankruptcy reported an $85 million shortfall between partner banks' holdings and depositor obligations.
2. Customers of fintech firms connected through Synapse had a total of $265 million in balances.
3. However, the banks themselves only had $180 million associated with those accounts, according to trustee Jelena McWilliams' report filed on Thursday.
4. The trustee noted that it remains unclear what occurred with the missing funds.

There is an $85 million shortfall between what partner banks of fintech middleman Synapse are holding and what depositors are owed, according to the court-appointed trustee in the Synapse bankruptcy.

Customers of fintech firms that used Synapse to link up with banks had $265 million in balances. However, the banks themselves only had $180 million associated with those accounts, trustee Jelena McWilliams said in a report filed late Thursday.

The missing funds explain the core issue at the heart of the worst meltdown in the U.S. fintech sector since its emergence in the years after the 2008 financial crisis. More than 100,000 customers of a diverse set of fintech companies have been locked out of their savings accounts for nearly a month following the failure of Synapse, an Andreessen Horowitz-backed startup, amid disagreements over user balances.

While Synapse and its partners, including Evolve Bank & Trust, have accused each other of improperly moving balances or keeping incorrect ledgers in court filings, McWilliams’ report is the first independent attempt to determine the scope of the missing funds in this debacle.

There is much still unknown 

Since being named trustee on May 24, McWilliams has been collaborating with four banks — Evolve, American Bank, AMG National Trust, and Lineage Bank — to reconcile their various ledgers, aiming to restore customer access to their funds.

However, the banks require additional information to complete the reconciliation process. McWilliams highlighted the need to understand how Synapse's brokerage and lending business might have influenced fund flows. She noted that Synapse appeared to have commingled funds among multiple institutions, utilizing multiple banks to serve the same companies.

Adding to the complexity, the fate of the missing funds remains uncertain. McWilliams stated, "The source of the shortfall, including whether end-user funds and negative balance accounts were moved among Partner Banks in a way that increased or decreased the respective shortfalls that may have existed at each Partner Bank at an earlier time, is not known at this time."

Despite efforts to reach McWilliams for comment, she has not responded to requests. The situation underscores the challenges and uncertainties faced by customers and stakeholders involved in the Synapse bankruptcy, with many questions remaining unanswered regarding the movement of funds and the resolution of the shortfall.

 Spreading the Pain Amidst Uncertainty

McWilliams' task has been further complicated by the lack of funds to pay external forensics firms or former Synapse employees to assist, as outlined in her report. Following the termination of the last Synapse employees on May 24, there are limited resources available for the complex reconciliation process.

Despite these challenges, some customers whose funds were held in demand deposit accounts at banks have already begun regaining access to their accounts. However, customers whose funds were pooled in communal FBO (For Benefit Of) accounts face greater difficulty in accessing their money. McWilliams noted that a comprehensive reconciliation of these accounts will take several more weeks to complete.

In her report, McWilliams presented several options for Judge Martin Barash to consider during a Friday hearing, aiming to facilitate at least partial access to funds for FBO customers. These options include prioritizing full payments to some customers based on the reconciliation status of their individual FBO accounts, while delaying payments to others. Alternatively, the shortfall could be evenly distributed among all customers to expedite the availability of limited funds.

Navigating Unprecedented Challenges

During the public hearing on Friday, McWilliams recommended to Judge Martin Barash that all FBO customers receive partial payments to alleviate the effects of being locked out of their funds, while also reserving some funds for later payments. However, Judge Barash expressed uncertainty about how to proceed, acknowledging the unprecedented nature of the case.

While expressing gratitude for McWilliams' efforts, Judge Barash admitted to struggling with determining the court's role and what assistance could be provided. He emphasized that the situation presented uncharted territory, particularly because the depositors' funds were not considered property of the Synapse estate. As a result, Barash questioned what actions the bankruptcy court could legally take to address the crisis.

Acknowledging the urgency of the situation, Judge Barash expressed a desire for resolution but indicated uncertainty about the extent to which court orders could effectively address the challenges faced by depositors and stakeholders in the case.

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Source: CNBC

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