Trustee McWilliams discovers an $85 million shortfall in the blocked assets

In a recent turn of events, fintech company Synapse has filed for bankruptcy, leaving over 100,000 customers across various platforms in a predicament. The bankruptcy trustee, Jelena McWilliams, a former Federal Deposit Insurance Corp. Chair, is working diligently to return access to frozen customer funds.

According to reports filed with the U.S. Bankruptcy Court for the Central District of California, Synapse's partner banks are holding approximately $180 million in demand deposit and for-benefit-of accounts. However, McWilliams's report states that customers of these partner banks are owed an additional $85 million more than what's being held for them.

The source of the shortfall and how funds may have been moved among partner banks is not currently known. A more comprehensive search for the money trail is complicated due to lack of funds and remaining Synapse employees.

Synapse, which may have commingled funds using multiple banks to serve some companies, dismissed its last employees on May 24. The company's bankruptcy has also affected fintech platforms like Yotta, Dave, Juno, and Copper, where an estimated $60-90 million of consumer funds remain unrecovered.

Teen-focused fintech Copper has terminated its bank deposit accounts and debit card services due to Synapse's bankruptcy. Around 85,000 customers of the fintech Yotta reported being locked out of their accounts. Access to funds has resumed for some demand deposit account customers, but a full reconciliation may take weeks for for-benefit-of account customers.

McWilliams has been involved in efforts to return access to frozen customer funds and has worked with four of Synapse's partner banks to give customers renewed access to their frozen funds. She has also recommended at the hearing that all for-benefit-of customers receive partial payments to alleviate the effects on end users.

However, more information is needed about how a Synapse brokerage and lending business may have affected the flow of funds. The situation remains fluid, and updates are expected as the investigation progresses. McWilliams did not respond to requests for comment from the network.