FINRA Department Of Enforcement Filed Disciplinary Proceeding Related To Patatian’s Securities Sales Practices
FINRA’s Department of Enforcement filed a Complaint against Patatian on February 26, 2021. In the Complaint, FINRA alleged that from 2013 through 2017, Patatian recommended non-traded real estate investment trusts, or REITs, to dozens of customers. The investments purchased totaled $7.8 million, earning Patation more than $450,000 in commissions. The Complaint also details unsuitable and improper recommendations to surrender and/or switch annuities.
The Complaint alleged that despite these recommendations, Patatian “did not understand how non-traded REITs worked or the risks associated with investing in them and failed to conduct reasonable due diligence to understand the REITs he recommended.”
Moreover, the Complaint alleges that Patatian’s recommendations to surrender and/or switch annuities resulted in unfavorable tax consequences, surrender charges, and other unexpected fees for his customers.
In connection with the Disciplinary Proceeding, FINRA is seeking sanctions, disgorgement or ill-gotten gains, and restitution.
Real Estate Investment Trusts (REIT)
REITs are modeled after mutual funds in the sense that a company owns or finances income-producing real estate and typically offer investors a revenue stream, diversification, and long-term capital appreciation. They are often advertised as sound retirement vehicles because they provide high dividend yields. Some REITs are publicly traded similar to traditional stocks, but many REITs are non-traded and can be illiquid for long periods of time.
However, these products are notoriously flawed. In recent years, the Securities and Exchange Commission (SEC) and FINRA have issued warnings and guidance on REITs, pointing to unreasonably and unfairly high commissions and fees, lack of transparency, and lack of liquidity. Investors in REITs can end up losing significant value and being stuck in the investment because REITs are not publicly traded on an exchange.
FINRA Rules require brokers to have “a reasonable basis to believe a recommended transaction or investment strategy involving a security or securities is suitable” based on a variety of factors, including the investor’s age, financial situation, investment objectives, risk tolerance etc. FINRA also requires brokers to “Know Your Customer” so that brokers learn and evaluate these factors before making investment recommendations. This applies to recommendations of REITs, annuities, and other investments.
Did You Invest With Megurditch “Mike” Patatian And/Or Western International Securities?
Investing in a REIT may not be for everyone. Because a REIT is a more complex investment, it’s best to work with someone who understands the risks and benefits of investing in one.
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingency fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today and let us know how we can help.