FINRA Fines Revere Securities $800,000 Over AML Failures

FINRA found that some of the IPOs showed signs of possible “ramp-and-dump” schemes. In these schemes, a stock price is pushed higher before shares are sold quickly, often causing the price to fall and creating losses for other investors.

Revere acted as a lead underwriter or selling-group member for more than 40 IPOs involving issuers operating in Hong Kong or China since 2022. FINRA found that the firm failed to identify and report potentially suspicious transactions connected to these offerings.

The regulator also identified weaknesses in Revere’s customer identification and due diligence procedures. Several customers opened accounts on the same dates, used the same residential addresses and showed similar trading patterns.

In one case, Revere allocated more than $1.5 million in IPO shares to eight customers referred by a foreign broker-dealer. Four customers stated that they were unemployed while reporting annual income above $200,000. Seven customer applications also contained contradictory information about the source of deposited funds.

Despite these warning signs, the accounts were opened without adequate verification.

On the day of the IPO, the stock price increased by 318% before falling by more than 50% by the market close. The eight customers also instructed Revere to sell their shares from IP addresses linked to countries different from their stated residences.

FINRA found that Revere did not properly identify these factors as potentially suspicious or report the activity.

Implications for Compliance Teams

The case shows why AML teams need to assess customer information, source of funds, account relationships, trading activity and IP locations together.

Broker-dealers should pay close attention to:

• Customers providing inconsistent identity, income or source-of-funds information.
• Multiple accounts opened around the same time.
• Shared addresses or other links between customers.
• Coordinated trading and rapid selling after an IPO.
• Trading activity that does not match the customer’s stated location.
• Unusual price movements connected to small-cap securities.

FINRA has also required Revere to engage a third-party consultant to review its compliance with FINRA rules and recommend improvements to its supervisory procedures and systems.

The case is a reminder that KYC, transaction monitoring and market surveillance should not operate separately. Compliance teams need to connect the information, investigate warning signs and escalate potentially suspicious activity when the overall pattern presents a higher risk.