The trustee appointed to oversee Synapse's bankruptcy has announced that $85 million of customer savings is missing in the aftermath of the fintech meltdown.

• The Synapse bankruptcy trustee reports an $85 million discrepancy between the funds held by partner banks and the amounts owed to depositors.
• Jelena McWilliams, the trustee, stated in a report filed late Thursday that customers of fintech firms that used Synapse to link up with banks had $265 million in balances, while the banks themselves only had $180 million associated with those accounts.
• She said that it's still unclear what happened to the missing funds.

The Synapse bankruptcy trustee reports an $85 million discrepancy between the funds held by partner banks and the amounts owed to depositors.

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

The failure of Synapse, an Andreessen Horowitz-backed startup, has resulted in more than 100,000 customers being locked out of their savings accounts for nearly a month, with disagreements over user balances at the heart of the worst meltdown in the U.S. fintech sector since its emergence in the years after the 2008 financial crisis.

The first outside investigation into the scope of missing funds in the controversy involving Synapse and its partners, including Evolve Bank & Trust, has been conducted by McWilliams.

Much unknown

McWilliams, as trustee since May 24, has collaborated with four banks - Evolve, American Bank, AMG National Trust, and Lineage Bank - to reconcile their records and enable customers to retrieve their funds.

McWilliams stated that the banks require more information to complete the project, specifically regarding how Synapse's brokerage and lending business may have affected fund flows. It appears that Synapse mixed funds among various institutions and utilized multiple banks to serve the same companies, according to McWilliams.

She said that it's still unclear what happened to the missing funds.

McWiliams wrote that 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 yet known.

Cravath partner and former FDIC chairman McWilliams declined to comment on the matter.

Spreading the pain

Synapse fired its last employee on May 24, making McWilliams' task more difficult as there are no funds to hire external forensics firms or former Synapse employees to assist, she stated in her report.

Some customers have already started accessing their accounts held at banks in demand deposit accounts, according to her.

Individuals whose funds were pooled in communal accounts known as FBO accounts will face challenges in retrieving their money, as a full reconciliation may take several weeks to complete, according to her.

At a Friday hearing, Judge Martin Barash will have several options presented to him by McWilliams in her report, which will allow some FBO customers to regain access to their funds.

Another option would be to spread the shortfall evenly among all customers to make limited funds available sooner.

McWilliams recommended that funds be distributed to end users as soon as possible after the status conference on Friday.