According to FINRA, Megurditch Mike Patatian was barred from association with any FINRA member in all capacities and ordered to pay disgorgement of $458,418.07 plus interest for making unsuitable investment recommendations.
Patatian recommended unsuitable purchases of non-traded real estate investment trusts (REITs) to customers without meeting his reasonable-basis suitability obligations. He also violated customer-specific suitability obligations by recommending these highly illiquid and risky investments to customers who required liquidity and desired less risky investments. Customers testified that Patatian promised they would get their money back in one to five years, despite prospectuses warning that the REITs were highly risky and could remain illiquid for seven years or more. Customers signed risk disclosures as blank forms at Patatian's direction, simply signing where he indicated without reading the documents because they trusted him.
Patatian also recommended unsuitable variable annuity surrenders to customers. When recommending surrenders, he did not consider or withhold applicable taxes, and customers incurred substantial tax bills and underpayment penalties. Patatian incorrectly believed that surrendering a variable annuity to purchase a REIT qualified as a tax-free 1035 exchange and told customers this provision applied. One surrender also resulted in a substantial penalty that Patatian failed to consider.
Additionally, Patatian made unsuitable recommendations that customers exchange variable annuities for new variable annuities based on faulty cost comparisons. He also impersonated a customer in a telephone call with an insurance company, providing the customer's date of birth and social security number. Finally, Patatian falsified firm records by inflating customers' investment experience and net worth to make REIT investments appear suitable.
This case demonstrates the severe consequences of putting commission interests ahead of customer welfare. Investors should be wary of financial professionals who downplay risks, make promises inconsistent with offering documents, or pressure clients to sign forms without reading them.
