According to FINRA, Megurditch Mike Patatian was barred from association with any FINRA member in all capacities, ordered to pay $262,958.73 plus interest in restitution to customers who sold at a loss, ordered to pay disgorgement of $458,418.07 plus interest, and ordered to offer rescission to customers still holding the securities at issue. The sanctions are not in effect pending Patatian's appeal to the National Adjudicatory Council.
An Office of Hearing Officers found that Patatian made unsuitable recommendations to his customers involving non-traded real estate investment trusts (REITs) and variable annuities. Patatian violated his reasonable-basis suitability obligation by recommending non-traded REITs to customers without understanding the potential risks of these products. He also violated his customer-specific suitability obligation by recommending that customers with specific liquidity needs, who did not want illiquid or risky investments, invest a substantial percentage of their liquid net worth into non-traded REITs.
Patatian made unsuitable recommendations that customers surrender their variable annuities to purchase non-traded REITs. He did not understand that these surrenders would cause significant tax liabilities and incorrectly advised some customers that their surrenders qualified as tax-free 1035 exchanges, when in fact they did not. He also made unsuitable recommendations that customers exchange their variable annuities for new variable annuities based on faulty cost comparisons and his failure to secure intended optional death benefits. These exchanges caused customers to experience significant and unexpected increases in fees and lose valuable existing death benefits.
FINRA also found that Patatian impersonated a customer on a phone call with an insurance company, providing the customer's date of birth and last four digits of their social security number. Patatian claimed he had authority from the customers to obtain information but provided no documentation of express authority that would have permitted him to impersonate the customer.
Finally, Patatian caused his member firm to maintain inaccurate books and records by overstating customers' investment experience on new account forms and inflating customers' net worth and liquid net worth on client disclosure forms for non-traded REIT recommendations. Patatian admitted he overstated financial information and experience to circumvent investment limitations and obtain principal approval for non-traded REIT purchases.
This case illustrates multiple serious violations that harmed customers through unsuitable recommendations, inadequate understanding of products, false tax advice, impersonation, and falsification of records. The substantial restitution and disgorgement orders reflect the significant customer harm. Investors should be cautious about non-traded REITs and variable annuity exchanges, verify tax consequences independently, and ensure their financial information on account forms is accurate.
