The bankruptcy of fintech middleman Synapse has caused an $85 million shortfall between what partner banks are holding and what depositors are owed. According to trustee Jelena McWilliams, customers of fintech firms using Synapse had $265 million in balances, but banks only held $180 million. This shortfall has led to over 100,000 customers being locked out of their savings accounts for nearly a month, marking one of the worst meltdowns in the U.S. fintech sector since its emergence post-2008 financial crisis. Accusations have been made between Synapse and its partners regarding improper balance movements or ledger inaccuracies, but McWilliams’ report is the first attempt to determine the extent of the missing funds.
Since being appointed as trustee on May 24, McWilliams has been working with four partner banks to reconcile their ledgers and help customers regain access to their funds. However, more information is needed to complete this project, particularly regarding how Synapse’s brokerage and lending business may have impacted fund flows. McWilliams revealed that funds were commingled among institutions and multiple banks were used to serve the same companies. The source of the shortfall, as well as what happened to the missing funds, remains unknown at this time, complicating the reconciliation process.
McWilliams has faced challenges in her role, as there are no funds available to pay external forensics firms or former Synapse employees for assistance. Despite this, some customers with funds in demand deposit accounts have started regaining access to their accounts. However, customers with funds pooled in FBO accounts will have a more difficult time getting their money back, with a full reconciliation expected to take several more weeks. McWilliams presented various options for Judge Martin Barash to consider at a hearing, such as paying some customers out fully while delaying payments for others based on reconciled FBO accounts or evenly spreading the shortfall to provide limited funds sooner.
McWilliams recommended that funds be distributed to end users promptly following the status conference, allowing at least some FBO customers to regain access to their funds sooner. With the complexity of the situation and the lack of clarity regarding the missing funds, the fallout from Synapse’s bankruptcy has created difficulties for both customers and partner banks. As the reconciliation process continues, the focus remains on resolving the discrepancies and ensuring that depositors are able to recover their funds as efficiently as possible.
