The Financial Industry Regulatory Authority (FINRA) is reportedly investigating misconduct allegations against two former executives of collapsed banking-as-a-service (BaaS) provider Synapse Financial Technologies.
FINRA is looking into Synapse’s brokerage arm’s former chief compliance officer, Mark Paverman, and the unit’s former president and CEO, Jeffrey Stanley, Bloomberg reported Wednesday (Sept. 3), citing an Aug. 28 complaint.
The complaint includes allegations that Stanley didn’t get proper authorization to open cash-management accounts on customers’ behalf and didn’t investigate signs of discrepancies between the ledger of Synapse and its partner bank, according to the report.
Stanley’s attorney told Bloomberg in an emailed statement, per the report: “Mr. Stanley denies the allegations by FINRA that he engaged in any misconduct, and intends to vigorously defend himself.”
The complaint also includes allegations that Paverman failed to save emails and “provided false information” during a FINRA investigation, according to the report.
Paverman did not reply to Bloomberg’s request for comment, per the report.
When Synapse filed for Chapter 11 bankruptcy in April 2024, the move affected more than 100 firms because the company was a middleware firm whose services allowed other businesses to embed banking services into their own offerings.
The trustee of Synapse’s Chapter 11 bankruptcy case found that about $85 million in the company’s customer funds were unaccounted for and that a tangled web of fund flows, bank accounts, FinTechs accounts and ledgers would make it challenging to restore access to the funds.
On Aug. 21, the Consumer Financial Protection Bureau sued Synapse and submitted a proposed stipulated final judgment and order that asks the court to provide a $1 civil money penalty that would enable the agency to access its Civil Penalty Fund and compensate the harmed consumers.
In its complaint, the CFPB alleges that Synapse failed to maintain adequate records of consumers’ funds and failed to ensure the records matched those maintained by its partner banks, “causing consumers to lose access to their funds.”
PYMNTS reported Aug. 22 that the CFPB’s lawsuit detailed how an alleged breakdown in Synapse’s recordkeeping and fund management created financial instability and hardship for thousands of consumers, highlighting the need for accurate tracking and reconciliation of consumer funds within the FinTech landscape.
