Financial regulators have filed charges against two former executives of Synapse Brokerage, alleging their failures led to over $100 million in customer funds being frozen and inaccessible for months.
The Financial Industry Regulatory Authority (FINRA) charged Jeffrey Stanley, the firm's former CEO, with failing to properly supervise a cash management program that ultimately left millions of customers unable to access their money. Mark Paverman, the former chief compliance officer, faces charges for failing to maintain required records and providing false information to regulators.
Banking-as-a-Service Model Under Scrutiny
The case centers on what regulators describe as a flawed “banking-as-a-service” arrangement between Synapse Financial Technologies and partner banks. By September 2023, the platform had grown to handle over $2 billion in customer deposits across millions of accounts.
Problems emerged when Synapse Fi couldn't reconcile its records with those of one of its banking partners, DDA Bank 1. The discrepancy involved tens of millions of dollars, with each party claiming the other's ledger was wrong.
Mass Account Openings Without Authorization
Stanley approved opening over two million brokerage accounts without getting proper authorization from customers, according to the complaint. Many customers received only opt-out emails and had no idea their funds were being moved into brokerage accounts or that they had become Synapse Brokerage customers.
“Many end users were unaware that their funds were no longer held in a DDA Bank account or that they were even Synapse Brokerage customers,” the complaint states.
Out of approximately 90,000 customers who received opt-out notices from one fintech , only about 29,000 opened the email and just 123 clicked on links to review the customer agreement or terms of service. Some customers even reported the emails as phishing attempts to their fintech providers.
Part of Broader FINRA Crackdown
The Synapse case comes during a period of heightened FINRA enforcement activity across the financial sector. Just weeks ago, the regulator launched a probe into Morgan Stanley's anti-money laundering controls, examining AML procedures across the bank's wealth and trading units. The investigation uncovered data quality issues, with employees raising concerns about incomplete information initially sent to regulators.
Earlier this year, FINRA hit Robinhood with a $29.75 million penalty, its second major fine since the GameStop trading chaos of 2021. The trading app must pay $26 million in fines plus $3.75 million in customer restitution, highlighting the platform's ongoing compliance struggles five years after the meme stock frenzy.
Interactive Brokers also faced regulatory action, agreeing to pay $2.25 million to settle charges over “4.2 million free-riding cases” where the broker failed to detect prohibited transactions.
The Collapse Unfolds
The situation deteriorated in May 2024 when DDA Bank 1 stopped processing transactions for Synapse Brokerage customers after Synapse Fi filed for bankruptcy . Customer funds at a second partner bank were also frozen.
Regulators say Stanley knew about the ledger disputes but continued allowing Synapse Fi employees to control customer account records and fund transfers. The complaint alleges over $85 million in customer funds were reallocated between accounts in April 2024 without customer permission through what amounted to accounting entries rather than actual fund transfers.
Some customers affected by the freeze have been unable to pay medical expenses, mortgages, and college tuition, according to the filing.
Record-Keeping Violations Surface
Paverman faces separate charges for record-keeping failures. The complaint alleges Synapse Brokerage failed to preserve email communications for three of eight registered employees and didn't maintain instant message records at all. Paverman also allegedly provided false information to FINRA in 2023, claiming the firm had independent access to its records when it actually relied on its parent company.
Similar record-keeping violations have been a focus of recent FINRA actions. The regulator fined US Tiger $250,000 and TradeUP $700,000 for using messaging platforms that deleted communications early, while H2C Securities paid $250,000 for failing to preserve over 1.25 million messages.
Synapse Brokerage was expelled from FINRA membership in June 2025 for failing to maintain required filings. Stanley is no longer registered with any financial firm, while Paverman remains registered with five other member firms.
Customers have gradually regained access to some funds. Program Bank deposits were returned by June 2024, and DDA Bank 1 began releasing funds in November 2024. However, customers whose funds were allocated to DDA Bank 1 have only recovered a fraction of their deposits due to the ongoing ledger discrepancy.
The Department of Enforcement is seeking monetary sanctions and other penalties against both executives.
