Securities Lawyers Blog
Advisor Megurditch Patatian (Patatian), formerly employed by brokerage firm Western International Securities, Inc. (Western International) has been subject to at least 13 disclosures of which nine are customer complaints, three are employment terminations for cause, and one is a regulatory action. According to a BrokerCheck report several of the customer complaints concern alternative investments such as direct participation products (DPPs) like business development companies (BDCs), non-traded real estate investment trusts (REITs), oil & gas programs, annuities, and private placements. The attorneys at Gana Weinstein LLP have represented hundreds of investors who suffered losses caused by these types of high risk, low reward products.
In February 2021 FINRA filed a complaint against Patatian alleing that he made 81 recommendations to 59 customers to purchase non-traded real estate investment trusts (REITs). According to FINRA, all of the recommendations were unsuitable because he lacked a reasonable basis to recommend the product to any investor. FINRA found that Patatian did not understand the basic features and risks associated with the non-traded REITs and failed to conduct reasonable diligence to understand the product. As part of the misconduct, FINRA alleges that Patatian caused customers to incur taxes and surrender fees by recommended that the customers surrender existing variable annuity policies when he failed to understand the adverse financial consequences of the surrenders. In one instance, FINRA claims that Patatian impersonated a customer in a telephone call with an insurance company to obtain the contract value and surrender fee for the variable annuity. Finally, in order to qualify investors for the REITs, FINRA claims that Patatian recorded inaccurate customer information on his member firm’s customer account and disclosure forms, including by overstating customers’ net worth and exaggerating customers’ years of investment experience. According to FINRA, Patatian inflated the customer’s net worth on the firm’s REIT paperwork in order to evade concentration limits on REIT investments.
DDPs include products such as non-traded REITs, oil and gas offerings, equipment leasing products, and other alternative investments. These alternative investments virtually never profit investors and are almost always unsuitable for investors because of their high fee and cost structure. Brokers selling these products are paid additional commission in order to hype these inferior quality investments providing a perverse incentives to create an artificial market for the investments.
Several studies have confirmed that Non-traded REITs underperform publicly traded REITs with some showing that Non-Traded REITs cannot even beat safe benchmarks, like U.S. treasury bonds. Brokers selling these products must disclose to the investor that non-traded REITs provide lower investment returns than treasuries while being high risk and illiquid – but almost never do. Because investors are not compensated with additional return in exchange for higher risk and illiquidity, these kinds of alternative investment products are rarely, if ever, appropriate for investors.
Brokers have a responsibility treat investors fairly which includes obligations such as making only suitable investments for the client after conducting due diligence. Due diligence includes an investigation into the investment’s properties including its benefits, risks, tax consequences, issuer, history, and other relevant factors. Appropriate due diligence would identify that an alternative investment’s high costs, illiquidity, and conflicts of interests that would make the investment not suitable for investors. Investors often fail to understand that they have lost money until many years after agreeing to the investment. In sum, for all of their costs and risks, investors in these programs are in no way additionally compensated for the loss of liquidity, risks, or cost.
Unfortunately, these types of alternative investment products continue to popular among brokers due to their high commissions. In order to counter the perverse incentives to sell these flawed product many states now limit investors from investing more than 10% of their liquid assets in Non-Traded REITs and BDCs. Many states impose these limitations because these investments do not benefit investors.
Patatian entered the securities industry in 1999. From April 2013 through April 2020 Patatian was registered with Western International. From May 2020 until March 2021, Patatian was a registered representative of Supreme Alliance LLC out of the firm’s Charlotte, North Carolina office location.
Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to the mishandling of their accounts. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.