According to FINRA, Megurditch Mike Patatian was barred from association with any FINRA member in all capacities and ordered to disgorge commissions in the amount of $458,418.07, plus prejudgment interest, for recommending unsuitable purchases of non-traded REITs, unsuitable variable annuity surrenders, and unsuitable variable annuity exchanges.
Patatian recommended non-traded real estate investment trusts to customers without meeting his reasonable-basis suitability obligations and violated customer-specific suitability obligations when he recommended the non-traded REITs to customers who required liquidity and desired less risky investments. Customers testified consistently that Patatian did not discuss the risks associated with REITs and promised they would get their money back in periods ranging from one to five years, when the prospectuses warned that REITs could remain illiquid for seven years or more.
Patatian also recommended unsuitable variable annuity surrenders to customers without considering or selecting the option to withhold applicable taxes. As a result, customers incurred substantial tax bills, including underpayment penalties, that they did not know about when following his recommendations. Patatian admitted he believed that surrendering a variable annuity and purchasing a REIT qualified as a tax-free 1035 exchange and told customers this provision applied, which was incorrect.
Additionally, Patatian made unsuitable recommendations to customers to exchange their variable annuities for new variable annuities based on faulty cost comparisons and failure to secure intended optional death benefits. FINRA also found that Patatian impersonated a customer in a telephone call with an insurance company, providing the customer's date of birth and Social Security number, and caused his firm to maintain inaccurate books and records by inflating customers' investment experience and net worth to make REIT investments appear suitable.
This case illustrates the serious harm that unsuitable investment recommendations can cause to investors, particularly seniors who require liquidity and cannot afford to lose principal. Non-traded REITs are illiquid investments that may be suitable for some investors but are completely inappropriate for others who need access to their funds. The fact that Patatian falsified customer information to make unsuitable investments appear appropriate demonstrates deliberate misconduct designed to generate commissions at customers' expense.
