Mike Patatian Subject of FINRA Enforcement Action Concerning Non-Traded REIT Sales
As recently reported, on February 26, 2021, FINRA’s Department of Enforcement filed a Complaint against former Western International Securities, Inc. (Western) financial advisor Megurditch ‘Mike’ Patatian. As alleged by FINRA in its Complaint, Mr. Patatian allegedly “made 81 recommendations to 59 customers to purchase non-traded real estate investment trusts (REITs).” Further, FINRA has alleged that all of these non-traded REIT recommendations were “unsuitable because [Mr. Patatian] lacked a reasonable basis to recommend…” these products to any investor, because Patatian purportedly “did not understand the basic features and risks associated with non-traded REITs and failed to conduct reasonable due diligence to understand” these complex financial products.
Previously registered broker and investment adviser Mike Patatian had more than two decades of securities industry experience, having begun working for Crowell, Weedon & Co. around 1999. Patatian was previously affiliated with Western from 2013 until his discharge from employment in March 2020. Most recently, from May 2020 – March 4, 2021, Mr. Patatian was affiliated with German-headquartered broker-dealer Supreme Alliance LLC.
As alleged by FINRA in its Complaint, Mr. Patatian made certain unsuitable investment recommendations for non-traded REITs from 2013 through 2017, while affiliated with Western. According to the Complaint, Patatian reportedly believed that non-traded REITs would only be illiquid for a period of 1 to 3 years, rather than the typical 7 to 10 year time frame that is customary for such complex financial products to remain illiquid. Despite the liquidity concerns associated with non-traded REITs—FINRA has alleged that Mr. Patatian nevertheless recommended these investments to six of his customers with significant near-term liquidity needs—including, in one instance, to a 58 year-old investor who was going through a divorce and who was also diagnosed with cancer.
Investing in non-traded REITs may present significant risk to an uninformed and unsophisticated investor, including: (1) high fees and commissions, (2) a general lack of transparency concerning the investment, including the fact that many non-traded REITs are structured as blind pools, meaning that an investor will not be able to readily determine the nature of the underlying property portfolio at the time of investing, and probably most concerning of all, (3) difficulty exiting an illiquid investment.
Unfortunately—because of their characteristic hefty fee and commission structure—in some instances financial advisors will unsuitably steer clients into non-traded investment vehicles without properly disclosing their many risks. Or, as alleged by FINRA in this matter, Mr. Patatian purportedly did not fully understand the risk components associated with non-traded REITs, including their considerable liquidity risk of around 7-10 years. As alleged by FINRA, Mr. Patatian was paid $458,418 in commissions from the sales of 81 non-traded REITs, amounting to approximately 80% of his earned commissions from April 2013 through March 2017.
Under applicable securities laws and FINRA Rules, brokerage firms like Western International Securities, Inc. have a duty to ensure that their registered representatives are adequately supervised. In this regard, brokerage firms must take reasonable steps to ensure that their brokers follow applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when a brokerage firm fails to adequately supervise its brokers, it may be held liable for losses suffered by investors.
Investors who have suffered losses in connection with an investment in a non-traded REIT, or similar complex and illiquid investment product, may contact our office by telephone at (201) 771-1115 or by email at info@gialawgroup.com for a no-cost and confidential consultation to learn more about their legal rights. The attorneys at Giarrusso Law Group LLC have extensive experience with handling all manner of claims on behalf of investors who have been victimized by securities fraud or related misconduct.