Washington, D.C., U.S. – Jelena McWilliams, the chair of the Federal Deposit Insurance Corporation (FDIC), revealed a significant $85 million shortfall in the midst of the Synapse bankruptcy case. The trustee appointed in the case disclosed that partner banks of the fintech middleman Synapse are currently holding $85 million less than what depositors are owed.
According to trustee Jelena McWilliams, customers of fintech firms that utilized Synapse to connect with banks had a total of $265 million in balances. However, the banks only held $180 million associated with those accounts, as outlined in a report filed on Thursday.
This shortfall has contributed to the most severe meltdown in the U.S. fintech sector since its emergence after the 2008 financial crisis. More than 100,000 customers of various fintech companies found themselves locked out of their savings accounts following the collapse of Synapse, a startup backed by Andreessen Horowitz, sparking disputes over user balances.
Since taking on the role of trustee on May 24, McWilliams has been collaborating with four banks – Evolve, American Bank, AMG National Trust, and Lineage Bank – to reconcile their ledgers. This reconciliation is essential for customers to regain access to their funds, but more information is required, especially concerning how Synapse’s brokerage and lending activities may have affected fund flows across institutions.
The complexity of the situation is exacerbated by the fact that the whereabouts of the missing funds remain unknown. McWilliams reported that Synapse appeared to have intermingled funds among several institutions, utilizing multiple banks to serve the same companies.
Despite challenges such as the lack of funds to hire external forensic firms or former Synapse employees, some customers whose funds were in demand deposit accounts have started regaining access to their accounts. However, users with funds pooled in communal accounts, known as for benefit of (FBO) accounts, will face a more prolonged process to access their money.
In her report, McWilliams offered several options for consideration at an upcoming hearing presided over by Judge Martin Barash. These options include varying approaches to distributing funds to FBO customers to ensure at least some of them can regain access to their funds promptly. The situation remains dynamic as efforts continue to reconcile accounts and resolve the financial discrepancies at hand.