The Financial Industry Regulatory Authority’s Department of Enforcement has filed a disciplinary proceeding complaint against broker Megurditch Patatian (aka Mike Patatian) alleging that, while associated with Western International Securities, Inc., Mr. Patatian engaged in conduct in violation of FINRA rules, including:
- making 81 unsuitable recommendations to purchase over $7.8 million in non-traded Real Estate Investment Trusts (REITs) to 59 customers, including 21 senior investors;
- recommending illiquid non-traded REIT to six customers that also needed liquidity;
- making unsuitable recommendations to four clients to surrender variable annuities used the fund illiquid non-traded REIT purchases;
- making six unsuitable recommendations to exchange variable annuities;
- impersonating a customer; and
- falsifying customer account and disclosure forms.
Mr. Patatian is a financial advisor with a history of customer complaints and employment terminations. He was registered as a broker with Western International Securities, Inc. (“Western International Securities”) in Westlake Village, California, from April 5, 2013, to April 2, 2020. Western International terminated Mr. Patatian’s employment on April 2, 2020, permitting him to resign “after the firm questioned the integrity of a client signed document.”
If you were a customer of broker Megurditch Mike Patatian or Western International Securities, Inc., contact New York securities arbitration lawyers Iorio Altamirano LLP for a free and confidential evaluation of your account.
See also:
Western International Securities Compliance Officer BARRED by FINRA – Pasadena, CA
FINRA Disciplinary Proceeding No. 2018057235801
On February 26, 2021, FINRA Department of Enforcement filed a complaint against broker Megurditch Mike Patatian. The complaint includes four causes of action: (1) Unsuitable REIT Recommendations (FINRA Rules 2111 and 2010); (2) Unsuitable Variable Annuity Surrenders (FINRA Rules 2111 and 2010); (3) Unsuitable Variable Annuity Exchanges (FINRA Rules 2330(b) and 2010); (4) Impersonating a Customer (FINRA Rule 2010); and (5) Causing Inaccurate Books and Records (FINRA Rules 4511 and 2010).
Unsuitable REIT Recommendations
FINRA alleged that Mr. Patatian violated FINRA Rules 2111 and 2010 by not having a reasonable basis to, based on reasonable diligence, that his recommendations to purchase non-traded REITs were suitable for customers because he failed to conduct a reasonable investigation into the risks and rewards of the products, including the risk that the product would remain illiquid for longer than three years. In addition, Mr. Pataitan recommended that six customers purchase non-traded REITs without having a reasonable basis to believe that the transactions were suitable for these particular customers, in light of the risky, illiquid nature of the non-traded REITS and the customers’ overconcentration in the products. Specifically, FINRA alleged the following:
- From April 2013 through March 2017, Mr. Patatian recommended 81 purchases of more than $7.8 million in non-traded REITs to 59 firm customers.
- A REIT is a corporation, trust, or association that owns or manages income-producing real estate. Non-traded REITs are REITs that are not traded on a national securities exchange. The risks of non-traded REITs include illiquidity, restrictive early redemption of shares, high front-end costs, and non-guaranteed distributions that may include borrowed funds and return of investor principal.
- In total, Mr. Patatian was paid $458,418.07 in commissions from the sale of 81 non-traded REITS. This sum represented approximately 80 percent of Mr. Patatian’s total commissions earned from April 2013 through March 2017, including 96 percent of his commissions in 2013 and 95 percent of his commissions in 2014.
- Prior to 2013, Mr. Patatian had no experience in selling REITS.
- Patatian did not understand how non-traded REITs worked or the risks associated with investing in them and failed to conduct reasonable diligence to understand the REITs he recommended.
- As set forth in the applicable prospectuses, the non-traded REITs Patatian sold to his customers involved a high degree of risk, speculative, and were only appropriate for investors who could afford a complete loss of their investment.
- The non-traded REITs Patatian sold to his customers were not suitable for customers with short-term liquidity needs.
- For example, the prospectus for one of the non-traded REITS, AHTII, that Mr. Patatian sold to 12 different investors provided that investors “should purchase the shares only as a long-term investment because of illiquid nature of the shares”; investing “involves significant risk and is suitable only for persons who have adequate financial means, desire a relatively long-term investment and will not immediate liquidity from their investment” and “we caution persons who require immediate liquidity….or who seek a short-term investment not to consider an investment.”
- Patatian incorrectly believed that the non-traded REITs he sold would be illiquid for just one to three years. In fact, the non-traded REITs Patatian sold could remain illiquid for seven or more years.
- For six customers, Mr. Patatian failed to take into account their specific financial situation, liquidity needs, health issues, and age when recommending the purchase of non-traded REITs. Each of the six customers purchased the non-traded REIT as Mr. Patatian recommended.
Unsuitable Variable Annuity Surrenders
FINRA alleged that Mr. Patatian violated FINRA Rules 2111 and 2010 by lacking a reasonable basis to believe, based on reasonable diligence, that four customers surrender their variable annuities to fund non-traded REIT purchases. Specifically, FINRA alleged:
- Between 2013 and 2015, Mr. Patatian recommended that four customers surrender their variable annuities to purchase non-traded REITs without informing the customers of the adverse financial consequences of those surrenders.
- In 2013 and 2014, Patatian recommended to three customers that they surrender their non-qualified variable annuities to purchase non-traded REITs.
- Patatian incorrectly believed that the transactions constituted a 1035 exchange and were therefore not a taxable event.
- Patatian failed to advise his customers of the negative tax consequences upon surrendering or partially surrendering their non-qualified variable annuities.
- Patatian even told several customers that they could reinvest funds from their surrendered variable annuities that had appreciated in value into a non-traded REIT and that the transaction would not be a taxable event.
- Contrary to Mr. Patatian’s understanding of the tax consequences of the transactions he recommended to customers, the customers’ gains on their surrendered variable annuities created a taxable event.
Unsuitable Variable Annuity Exchanges
FINRA alleged that Mr. Patatian violated FINRA Rules 2330(b) and 2010) by recommending that six customers exchange their existing deferred variable annuities for different variable annuities without understanding the consequences of the exchanges at the time of his recommendations. Specifically, FINRA alleged:
- In 2017 and 2018, Mr. Patatian recommended six variable annuity exchanges to his customers without understanding the consequences of the exchanges.
- In 2017, Mr. Patatian recommended that two customers exchange their two separately held variable annuities for two new variable annuities. On firm disclosure forms, Mr. Patatian cited the basis for his recommendation as a desire to lock in a higher death benefit at a minimal cost increase.
- Patatian made a cost comparison of the contract costs for the two customers’ existing variable annuities and the proposed contracts. Although the existing contracts’ living benefit riders were terminated in 2015, Mr. Patatian’s cost comparison still included them.
- Because the two customers were no longer paying for the riders, Mr. Patatian’s cost comparison was inaccurate, and the cost of the new variable annuities was approximately $4,000 per year greater than the existing contracts. Mr. Patatian was unaware at the time of his recommendation that the new variable annuities were more expensive.
- In 2017 and 2018, Mr. Patatian also recommended to four customers that they exchange their variable annuities for a different variable annuity.
- Patatian’s state rationale for the exchanges was to secure a death benefit at the existing variable annuities’ appreciated contract value.
- At the time of the recommendation to the four customers, Mr. Patatian mistakenly maintained that all variable annuity products included a return of premium death benefit as a standard feature.
- Patatian did not know, nor take reasonable efforts to know, at the time of his recommendations that the product application required him to select the optional return of premium death benefit option for each of the four customers. Mr. Patatian, therefore, did not select that option, and the customers did not receive the return of premium death benefit, which was Mr. Patatian’s stated basis for recommending the transactions.
- Moreover, at the time of his recommendation, Mr. Patatian was also unaware that one of the customers would incur a surrender charge in connection with his variable annuity exchange. The customer incurred a surrender charge of $961.
Impersonating a Customer
FINRA alleged that Mr. Patatian violated FINRA Rule 2010by impersonating a customer on a call with an insurance company. Specially FINRA alleged:
- In 2015, Mr. Patatian recommended that two customers, a married couple, surrender a variable annuity to purchase a non-traded REIT.
- In January 2015, at the time of Mr. Patatian’s recommendation to the married couple, they held the variable annuity away from Western International, Mr. Patatian was not the broker of record on the account, and he was unaware of the contract value and whether the customers would incur a surrender charge and the amount of that charge.
- The couple surrendered their variable annuity to purchase the non-traded REIT at Mr. Patatian’s recommendation, incurring a surrender charge of $4,212.
- After the surrender, Mr. Patatian impersonated one of his customers in a telephone call with the insurance company to obtain the contract value and surrender charge of the variable annuity.
- At the beginning of the call, Mr. Patatian claimed to be the wife of the married couple, a woman. When the insurance company representative asked him to clarify his identity, Mr. Patatian stated that he was the husband of the married couple and then provided the husband’s date of birth and the last four digits of social securities number to authenticate the husband’s identity.
- The married couple was not aware of or authorized Mr. Patatian’s impersonation.
Falsifying Customer Account and Disclosure Forms
FINRA alleged that Mr. Patatian caused his firm to make and preserve inaccurate books and records and therefore violated FINRA Rules 4511 and 2010. Specifically, FINRA alleged:
- Between 2013 and 2016, Mr. Patatian inaccurate customer information on the firm’s customer account and disclosure forms.
- Due to the risky nature of non-traded REITs, certain states set limitations relative to the net worth on how much a customer could purchase. These limitations were set forth in the accompanying non-traded REIT prospectuses.
- From 2013 to 2017, California limited the amount that a customer could invest in any single non-traded REIT to ten percent of the investor’s net worth.
- The 59 customers that Mr. Patatian recommended non-traded REITs to were California residents.
- Patatian was aware of the ten percent concentration limit at the time he was recommending the non-traded REITs and understood that the firm would reject a transaction as unsuitable if it exceeded ten percent of the customers’ net worth.
- To avoid the ten percent limit, Mr. Patatian inflated customers’ net worth on the client disclosure form in 26 instances. In doing so, Mr. Patatian was able to sell non-traded REITs in amounts over ten percent of the customers’ net worth to 18 customers.
- In addition, Mr. Patatian routinely and inaccurately exaggerated customers’ years of experience in stock and bond investing on new account firms.
Megurditch Mike Patatian (CRD NO. 4047060)
Mr. Patatian has 21 years of experience in the securities industry with a history of customer complaints and employment terminations. He is currently registered as a broker with Supreme Alliance LLC in Granada Hills, California.
Customer Complaints
Mr. Patatian has been the subject of nine customer disputes since 2004:
- Customer Dispute (2018): A customer alleged that Mr. Patatian failed to disclose that a REIT was not liquid. The customer did not file a securities arbitration complaint. Instead, the customer complained directly to Western International Securities, which denied monetary compensation.
- Customer Dispute (2017): A customer alleged that Mr. Patatian made poor recommendations related to Exchange Traded Funds. The customer did not file a securities arbitration complaint. Instead, the customer complained directly to Western International Securities, which denied monetary compensation.
- Customer Dispute (2017): A customer alleged that Mr. Patatian provided bad investment advice related to a REIT. Western International Securities settled the dispute for $30,000.
- Customer Dispute (2015): A customer alleged that Mr. Patatian unsuitably recommended a variable annuity. CISO Financial Services, L.P., the firm that hired Mr. Patatian at the time that the conduct occurred, settled the dispute for $492.35.
- Customer Dispute (2013): A customer alleged that Mr. Patatian unsuitably recommended variable annuity switches. The customer did not file a securities arbitration complaint. Instead, the customer complained directly to CISO Financial Services, L.P., which denied monetary compensation.
- Customer Dispute (2013): A customer alleged that Mr. Patatian unsuitably recommended a variable annuity and misrepresented key features, including surrender charges. The customer did not file a securities arbitration complaint. Instead, the customer complained directly to CISO Financial Services, L.P., which denied monetary compensation.
- Customer Dispute (2008): A customer alleged that Mr. Patatian unsuitably recommended a variable annuity. CISO Financial Services, L.P., the firm that hired Mr. Patatian at the time that the conduct occurred, settled the dispute for $8,786.30.
- Customer Dispute (2004): A customer alleged that Mr. Patatian recommended a variable annuity that was not consistent with her needs. The customer did not file a securities arbitration complaint. Instead, the customer complained directly to CISO Financial Services, L.P., which denied monetary compensation.
- Customer Dispute (2004): A customer alleged that a variable annuity within his account was changed without his knowledge. The customer did not file a securities arbitration complaint. Instead, the customer complained directly to WM Financial Services, Inc., which denied monetary compensation.
Mr. Patatian denies any wrongdoing.
Customers who were denied compensation by Western International Securities should contact an experienced securities arbitration attorney for further consultation.
Employment Separations
Mr. Patatian has been terminated from four separate brokerage firms:
- April 2, 2020: Western International terminated permitted Mr. Patatian to resign “after the firm questioned the integrity of a client signed document.”
- March 27, 2020: Newbridge Securities Corporation permitted Mr. Patatian to resign, alleging that Mr. Patatian failed to disclosed arrest information during his pre-hire process. Patatian claims that he was detained and cited a ticket but not arrested.
- March 20, 2013: Cuso Financial Services, L.P. permitted Mr. Patatian to resign, alleging that he failed to follow the firm’s policy with regards to firm transaction documentation.
- February 2, 2004: WM Financial Services, Inc. terminated Mr. Patatian’s employment, alleging inconsistencies in statements provided to the regional sales manager.
How to Recover Financial Losses or Obtain a Free Consultation
If you or a loved one were a customer of Megurditch Mike Patatian or Western International Securities, Inc. and either sustained financial losses or suspect that Mr. Patatian did not have your best interest in mind when recommending investments or account transactions, contact New York securities arbitration attorney August Iorio of Iorio Altamirano LLP. August Iorio can be reached at august@ia-law.com or toll-free at (855) 430-4010 for a free and confidential evaluation of your account.
Iorio Altamirano LLP is a securities arbitration law firm based in New York, NY. Iorio Altamirano LLP pursues FINRA arbitration claims nationwide on behalf of investors to recover financial losses arising out of wrongful conduct by stockbrokers and brokerage firms.