The Financial Industry Regulatory Authority charged former Synapse Brokerage CEO Jeffrey Stanley and its former compliance chief, Mark Paverman, late last month with misconduct that allegedly led to end users losing access to over $100 million.
Stanley “failed to reasonably supervise” Synapse Brokerage’s cash management program, including by opening accounts without adequate authorization from customers and by allowing the movement of customer funds without adequate authorization from customers.
FINRA also alleged that Stanley allowed Synapse Fi, its parent company and a non-FINRA member, to perform “significant” brokerage functions, such as tracking and accounting for customer funds and keeping the ledger necessary to reconcile customer account balances without a necessary supervisory system.
Stanley allegedly failed to investigate substantial discrepancies between ledgers of customer funds created by Synapse Fi and the ledgers of one of its partner banks, FINRA said.
Paverman, for his part, allegedly failed to preserve books and records required by FINRA – specifically, email communications, instant messages and electronic communications of Synapse Brokerage or Synapse Fi personnel.
He also allegedly lied to FINRA about Synapse Brokerage’s access to its books and records. The firm had hired a vendor to maintain its books and records, but didn’t have independent access to those books and records – so when FINRA requested information from Synapse Brokerage, Paverman was unable to provide that information, FINRA said.
Synapse’s April 2024 Chpater 11 bankruptcy has had far-reaching effects on end users of partner fintechs including Yotta, Juno and Copper – many of whom remain unable to access their funds 17 months after bankruptcy.
The Consumer Financial Protection Bureau hit Synapse Fi on Aug. 21 with an enforcement action alleging it had both failed to keep proper track of consumers’ funds and failed to ensure the records they kept matched those of partner banks. The CFPB proposed tapping its victims fund to pay back-end users, many of whom are still locked out of their funds. A bankruptcy court hearing will take place Thursday.
FINRA expelled Synapse Brokerage from its membership in June.
FINRA declined to comment on the matter. Paverman and Synapse founder Sankaet Pathak did not respond to requests for comment.
Stanley “denies the allegations by FINRA that he engaged in any misconduct, and intends to vigorously defend himself,” Paul Vorndran, Stanley’s attorney, said in an emailed statement to Bloomberg.
