Private placements and alternative investments carry immense risk, which is why regulatory agencies mandate strict due diligence before a brokerage firm can offer them to retail investors. FINRA recently censured and fined World Choice Securities (WCS) $28,000 for allegedly failing to reasonably supervise the due diligence of a private real estate offering.

In a related action, FINRA suspended Robert Kenneth Cargin—the firm’s CEO and President—for four months and fined him $5,000 for executing inaccurate approval forms.

www.finra.org/rules-guidance/oversight-enforcement/disciplinary-actions

The Allegations According to FINRA’s findings, between November and December 2022, WCS failed to conduct the required due diligence on a private real estate offering, violating FINRA Rules 3110 and 2010 as well as Regulation Best Interest. Furthermore, FINRA found that in early 2023, CEO Robert Cargin executed 19 approval forms for Private Securities Transactions (PSTs) that were backdated to make it appear as though he had pre-approved the transactions before they occurred, which he had not.

What This Means for Investors Brokerage firms act as the first line of defense against fraudulent or impossibly risky investments. When a firm fails to conduct due diligence on a private real estate placement, retail investors are effectively flying blind. Worse, when firm executives falsify compliance documents to hide the fact that transactions bypassed the approval process, the entire supervisory structure has failed.

If you lost money in a private real estate offering, Regulation D private placement, or any alternative investment recommended by a World Choice Securities representative, the firm’s documented failure to conduct proper due diligence may serve as strong grounds for a FINRA arbitration recovery claim.