- Key insight: Former Synapse Brokerage executives have been charged with misconduct.
- What’s at stake: Banking-as-a-service relationships between banks and fintechs have come under scrutiny, in part because of the Synapse case, in which hundreds of millions of depositor funds are missing.
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Forward look: Expect tightened regulatory oversight and stricter books-and-records compliance requirements.
Source: Bullets generated by AI with editorial review
The Financial Industry Regulatory Authority has charged two former officers of Synapse Brokerage, the cash management arm of Synapse Financial Technologies, with misconduct. Former executives Jeffrey Stanley and Mark Paverman have been charged with mismanaging Synapse Brokerage accounts, failing to investigate red flags and not preserving emails and instant messages in line with FINRA rules, among other things.
The complaint follows an action
Synapse Financial Technologies was a banking-as-a-service middleman whose bankruptcy and shutdown left millions of fintech customers without access to their funds, and in some cases their life savings. (Synapse Brokerage, also now out of business, was a FINRA member.)
FINRA’s complaint recounts how two years ago, Synapse and its partner banks, which were holding $2 billion in fintech customer deposits, realized their ledgers didn’t match, and there was a shortfall of funds that was later estimated by Synapse’s bankruptcy trustee at $60 million to $95 million. Synapse and its primary bank, Evolve Bank & Trust, each said the other’s ledger was inaccurate.
“Many Synapse Brokerage customers still cannot access all of their funds, and some customers have been unable to pay their outstanding obligations, including medical expenses, mortgages, and college tuition,” the complaint states.
Impacted Synapse end user and Jay Newbern agreed with the allegations.
“This enforcement action confirms what I’ve been stating since day one: Consumers were made to think they had ordinary checking accounts, when in reality their money had been pushed into brokerage structures they never agreed to,” Newbern told American Banker. “The whole system was designed to make people believe they were opening safe, insured bank accounts, when behind the scenes, our funds were being shifted into something else entirely. Consumers weren’t confused; they were deceived. Every step was engineered to make consumers think their money stayed in checking accounts when in reality it was transferred without authorization.”
Newbern had a demand deposit checking account from 2021 until late 2023, when his funds were moved into a brokerage structure without his knowledge.
“Like many, I didn’t even learn of the brokerage involvement until 2024,” Newbern said. “It’s validating to see regulators finally confirm what I and others have been saying all along. The enforcement action shines a light on the lengths firms went to blur the lines and keep depositors in the dark.”
Synapse Financial Technologies formed its Synapse Brokerage subsidiary after it ended its relationship with Evolve Bank. User funds were moved from Evolve to cash management accounts at three other partner banks through a cash sweep program, though Evolve continued to service end users’ debit cards.
The complaint alleges that Jeffrey Stanley, who was president and CEO of Synapse Brokerage from December 2023 to May 2024, “failed to reasonably supervise the cash management program in violation of FINRA Rules 3110 and 2010.”
Specifically, Stanley is charged with approving the opening of Synapse Brokerage cash management accounts for end users without their adequate authorization; allowing the movement of customer funds without adequate authorization from customers and allowing Synapse, a non-FINRA member, to perform brokerage functions, including tracking and accounting for customer funds and keeping the ledger necessary to reconcile customer account balances, “without implementing a supervisory system reasonably designed to supervise Synapse Fi’s conduct.” He also “failed to reasonably investigate red flags of substantial discrepancies between ledgers of customer funds” created by Synapse and Evolve. Stanley did not respond to a request for comment.
FINRA also charged Mark Paverman, the part-time chief compliance officer of Synapse Brokerage from December 2023 to January 2025, with failing to preserve books and records in accordance with the Exchange Act of 1934 and thereby violating FINRA rules.
Specifically, the agency said Synapse Brokerage, through Paverman, failed to preserve emails and instant messages of Synapse Financial Technology employees who performed brokerage functions. Separately, in May 2023, Paverman “falsely represented to FINRA that Synapse Brokerage had directly contracted with a vendor to maintain its books and records and that the firm had independent access to its books and records when it did not,” the complaint stated. Paverman did not respond to a request for comment.
Meanwhile, Synapse Financial Technologies’ former CEO Sankaet Pathak, who now leads a robotics startup called Foundation Future Industries, recently gave an interview to luxury lifestyle magazine
Asked about how his “journey — from fintech to robotics” has shaped his “approach to building transformational companies,” Pathak replied, “At the core of any business, the fundamentals remain the same: are you building a great product that people love and want to buy, and are you executing that vision as quickly as possible? The rate of progress is the single biggest factor determining a startup’s success, whether in fintech, robotics, or any other field. My journey has taught me to maintain a relentless focus on delivering a great product while iterating rapidly to stay ahead of the competition.” A spokesman for Pathak declined the opportunity to comment.