One year after FINRA Enforcement filed a complaint alleging ex-Western International Securities broker Megurditch Mike Patatian unsuitably recommended his customers purchase non-traded real estate investment trusts (REITs) and prematurely surrender or exchange existing variable annuity (VA) policies, a FINRA OHO extended hearing panel permanently barred Patatian from the securities industry, ordering disgorgement of commissions and restitution for unsuitable recommendations and damages caused when members sold REITs and VAs at a loss.
According to the report, Megurditch Patatian (CRD #4047060) sold REITs sponsored by American Realty Capital or subsidiary Cole Capital. In 2017, American Realty Capital's CFO Brian Block was convicted of REIT-related securities fraud. One broker-dealer, National Planning Holdings, as early as 2014, halted American Realty Capital REIT trading over a $23 million accounting problem that allegedly was deliberate. The SEC, FINRA, and other state regulators launched an investigation at that time, meaning the problem was well known.
In agreeing with Enforcement's allegations, the Panel determined that even after this, Patatian made unsuitable recommendations for customers to purchase these problematic and risky REITs, surrender variable annuities, and exchange VAs as well. Furthermore, the panel found that in order to get his unsuitably complex REIT transactions approved, Patatian overstated customers' financial positions and investment experience levels, which caused his firm to maintain inaccurate books and records.
The panel also found that Patatian impersonated a customer.
According to the report, Patatian recommended many of his customers invest a total of $7.86 million in REITs and created inaccurate forms to facilitate these sales, earning $450,000 in commissions as a result. The findings state that many of Patatian's customers were elderly investors and retirees who previously worked for Los Angeles, California's Department of Water and Power. At least one third of Patatian's clients were senior citizens when they bought their REITs.
One of the ways Patatian reportedly inflated his customers' investment experience was by using their DWP service time as a proxy for said experience. For instance, if a client worked for DWP for 30 years, Patatian reported that the customer had 30 years of investing experience, regardless of whether the customer actually had that experience or not.
Prior to joining Western International Securities, Patatian was registered with CUSO Financial Services, which filed a disclosure upon his separation, noting that Patatian failed to follow CUSO firm policy regarding transaction documentation. Despite investigating Patatian at that time, Enforcement opted not to take disciplinary action against or charge Patatian. Patatian in 2020 admitted to attending American Realty-sponsored trips that he described as "a payoff, like a bonus, it was greasing the wheel."
Patatian not only sold REITs that were unsuitably for his clients, according to testimony, he admitted that he did not know how those REITs worked.
Insofar as variable annuities are concerned, investigators described the VA surrenders as unsuitable because Patatian recommended investors surrender VAs in order to purchase REITs, which not only violates FINRA rules, but also resulted in considerable damages, including tax liabilities of tens of thousands of dollars, as well as additional surrender fees. The VA exchanges, likewise, resulted in losses and added expenses for his clients that investigators determined were inappropriate and unnecessary, thus making these recommendations similarly unsuitable.
If you invested with former Western International Securities broker Megurditch Mike Patatian or with any broker or financial adviser who unsuitably recommended you purchase a non-traded REIT, such as the risky and illiquid American Realty Capital REIT which was suffering from its own internal financial troubles, and these inappropriate transactions resulted in financial damages, such as outright losses, excessive commissions, surrender fees, or additional sales charges and tax liabilities, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.