Evolve, Lineage Pursue Separate Reconciliation Efforts In Synapse Bankruptcy Disaster
Evolve Says Its Reconciliation Will Take Two Months, Once It's Obtained Needed Data
Hey all, Jason here.
Here with a quick recap of the status filings in advance of today’s hearing in the Synapse bankruptcy case.
Unlike other mainstream media outlets, I’ve continued to choose not to paywall this coverage, especially as I’m aware many end users and mainstream media reporters unfamiliar with the banking/fintech space are following this coverage.
If you enjoy reading this newsletter each Sunday and find value in it, please consider supporting me (and finhealth non-profits!) by signing up for a paid subscription. It wouldn’t be possible to do what I do without the support of readers like you!Evolve, Lineage Pursue Separate Reconciliation Efforts In Synapse Bankruptcy Disaster
There are a handful of items of note in the status reports filed with the court in advance of today’s status conference in the ongoing Synapse bankruptcy saga.
The Synapse Chapter 11 trustee, former FDIC Chair Jelena McWilliams, recapped progress to date on returning funds and reconciliation efforts, with some important new details.
Evolve still holds $644,000 of DDA funds, for which it has requested additional information from the five fintech programs associated with these funds in order to attempt to verify the balances prior to disbursing them.
Lineage holds a total of $190,167 of DDA funds, of which approximately $30,000 is associated with accounts belonging to end users and the other $160,000 is “part of a DDA loan program” that Lineage is attempting to validate against Synapse’s ledger data before disbursing. These funds may be tied to secured lending products, like credit building loans or secured charge cards, previously offered by Synapse fintech programs.
Since the last status report on July 3rd, an additional $3.3 million in FBO funds has been distributed by AMG. No additional FBO funds have been released by Evolve, Lineage, or American.
American Bank still holds $43,339.67 of FBO funds, which the bank previously represented belonged to a single end user of a Synapse fintech program. However, on Sunday, Fintech Business Weekly reported, based on a source with knowledge of the matter, that the end user in question isn’t actually owed those funds.
Now, according to the trustee’s report, “American Bank is verifying a balance discrepancy between the Fintech and end user’s records and anticipates distributing all FBO funds within the next 10 business days.”
In its status report, American Bank acknowledged receiving “new information” in the form of records held in MongoDB, seemingly admitting it doesn’t actually know to whom the funds belong, saying, “American Bank is in receipt of new information regarding the Remaining Funds. Accordingly, American Bank is continuing to investigate the status of the Remaining Funds in an expeditious manner.”
AMG has paid out a total of about $110 million since the trustee’s appointment on May 24th — though the bank had paid out an additional $55 million before McWilliams’ appointment.
Neither Evolve nor Lineage have yet paid out any FBO funds, arguing that the Synapse ledger data is not accurate and reliable.
In its status update, Evolve reinforced its lack of confidence in Synapse’s ledger data and clarified it is undertaking its own effort to reconcile the approximately $46 million it holds, without relying on Synapse’s ledgers, saying, (emphasis added) “Evolve has identified numerous unexplained inaccuracies in the Synapse-generated ledger, Evolve is proceeding with a plan to calculate the actual current balance for Synapse Brokerage end users across the Synapse ecosystem, independent of the ledger generated by Synapse (“Reconciliation Plan”).”
Evolve stated it expects efforts to reconcile accounts to take approximately two months — once it has obtained all needed data, saying, (emphasis added) “The Bank is expediting the implementation and completion of the Reconciliation Plan. However, in light of the project’s scope and complexity given the millions of transactions that need to be included, the Bank expects that completion will take approximately [two months] [sic] once the data has been collected, presuming the data is complete.”
The timeline suggested by Evolve’s latest status report seemingly contradicts recent reporting by CNBC that the bank had “made headway” and was anticipating a release of funds “in a matter of weeks,” as well as comments Evolve senior vice president and chief marketing and communications officer Thomas Holmes Jr. made to the Wall Street Journal just two days ago, which also suggested that reconciliation was on track to be completed in a “matter of weeks.”
If it takes Evolve another two months to complete reconciliation — if that is even possible — and return funds to end users, it would make for a total of over four months since users lost access to their funds.
Lineage’s status update suggests it is undertaking its own effort, separate from Evolve’s, together with the trustee to obtain all necessary data and reconcile it. Lineage’s filing states in part:
Lineage has made significant progress in collecting and preserving Synapse data critical to the reconciliation process. Lineage has collaborated directly with the Trustee and her advisors to recover and preserve the Synapse data, information and records necessary for the reconciliation process. Lineage Bank’s efforts to obtain and preserve the necessary information to create a comprehensive global reference for the hundreds of millions of transactions conducted through the Synapse platform are ongoing.
McWilliams continues to attempt to facilitate data sharing and reconciliation efforts across the banks in order to release partial or full amounts owed to end users. Full reconciliation would shed light on:
funds associated with interest payments and fintech program reserve accounts
unsettled credit and debit card transactions
“fintech partner overdrafts” and negative balances, the understanding of which is necessary in order to determine funds owed to partner banks and/or the Synapse estate — for example, American represents it is owed about $2.3 million for debit card transactions it processed but that have not been settled
McWilliams’ status report acknowledged the recent Russia-linked hack of Evolve and clarified that Evolve “has not provided information about the impact of the data breach to Synapse end users or Synapse company information beyond their publicly available statements.”
The trustee and parties working on reconciliation efforts are taking “additional cybersecurity precautions when sharing records and data with Evolve to balance interests in efficient reconciliation and data security,” suggesting that Evolve’s data breach has or will negatively impact the speed with which these tasks can be completed.
McWilliams notes that the estate continues to have no liquidity nor any arrangement in place with secured creditors TriplePoint Capital and SVB should funding be obtained. The estate is in discussions with the secured creditors, in the event that any asset sale is feasible.
Synapse Coverage Elsewhere
The Big Number: $95 Million (NYTimes)
What Happens When Your Bank Isn’t Really a Bank and Your Money Disappears? (NYTimes)
A Fintech’s Collapse Raises Questions About a Hot Business Model (Bloomberg)
This fintech launched weeks after Synapse failed. Its CEO is undaunted. (American Banker)
Why the Synapse Bankruptcy Has the Fintech World on Edge (Wall Street Journal)
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