A former Western International Securities broker lost an appeal of a FINRA decision that he recommended unsuitable non-traded real estate investment trust purchases.
Megurditch Patatian, the California-based former registrant, originally told FINRA investigators he was unfamiliar with the illiquid, high-risk products before recommending them, though he later argued his words had been “twisted and manipulated” by regulators.
According to the appeal, Patatian joined the industry in 1999, and worked at WM Financial and Los Angeles County’s Water and Power Community Credit Union via CUSO Financial Services, working mostly with retirees from the Los Angeles County Department of Water and Power. He resigned from CUSO, with the firm saying he failed to follow company policies on documenting transactions, according to his BrokerCheck profile
Patatian joined Western international Securities in 2013 with 100 clients, most of whom transferred from CUSO and were DWP retirees. Most of his business involved recommending and selling non-traded REITs to these clients, according to FINRA.
He later testified he was inexperienced with the product before joining Western, but over four years, he recommended 81 purchases totaling more than $7.8 million in non-traded REITs to 59 customers, at least one-third of whom were 65 or older. Non-traded REITs are considered a high-risk, often illiquid product that aren't suitable for many investors.
Four unnamed clients testified against Patatian, with another client who died before the hearing represented by their son. One victim, named “JO” in the complaint, worked as a water treatment supervisor at the DWP for nearly 36 years and opened a CUSO account with Patatian in 2006, subsequently following him to Western.
At the time she opened a Western account, JO was in the midst of a divorce, being treated for cancer, and did not know where she and her four children were going to live, according to FINRA, and thus requested her money be “safe and readily accessible” when needed.
JO had an annual income of $100,000 and a $2.5 million net worth, and in 2014, surrendered a variable annuity she held and invested the proceeds into a non-traded REIT (paying about $34,000 in federal and state taxes, which she claims Patatian never discussed). She claimed the broker also never discussed the risks of the investment, and only after repeatedly pressing him to sell it did she get her money back (at an almost $26,000 loss).
Another client known as JR had been a client with Patatian since 2004 before retiring from her job as a DWP security guard. She first began exhibiting dementia symptoms in 2012, with her son obtaining power of attorney that year. By 2015, JR lived in a retirement community, and eventually moved to a residential care facility.
When the son “vented” to Patatian about the financial stress of the situation, Patatian allegedly “pushed” a non-traded REIT investment. JR and her son signed documents agreeing to invest in the REIT, but the son later found that his mother's financial data was “significantly overstated,” with her annual income at $60,000 and her net worth about $250,000, far lower than the $2.5 million the broker recorded. JR was still invested in the risky REIT when she died in 2018.
FINRA first began looking into Patatian in 2013, based on his departure from CUSO, though it ultimately decided against filing disciplinary charges. But during that investigation, regulators learned about some of his alleged conduct at his new firm, and opened another investigation in 2018; Patatian sat for on-the-record testimony in spring 2020.
During his testimony, Patatian said he had no interest in or experience with REITs before joining Western. The firm offered “virtually no training” about the product before he began recommending it, and Patatian repeatedly reiterated he didn’t understand the investment, and if he had, he wouldn’t have recommended them to customers, calling them a “nightmare” and “disaster” for clients.
“‘Like, I didn’t know,’” Patatian said during his 2020 testimony, according to FINRA. “I was too stupid to really understand what it was really all about, and I guess I was guilty of looking away.”
In February 2021, FINRA filed a five-part complaint against Patatian for making unsuitable recommendations of the REITs and variable annuities, as well as impersonating a customer on a call with an insurance company. In June 2022, after a seven-day hearing, a FINRA panel ruled against the former broker and barred him from the industry, which he subsequently appealed.
During the hearing and appeals, Patatian said his testimony from 2020 was “pretty outlandish” and manipulated by regulators, saying he in fact did research REITs before recommending them, and that he “understood REITs better than any other broker in his office.” Patatian also argued he believed he was appearing as a “cooperating witness” against Western during his 2020 testimony, but FINRA found nothing indicating regulators made such a suggestion.
“In any event, even if Patatian genuinely believed he was a cooperating witness, this supports that his testimony at the 2020 OTR was truthful,” the appeal decision read.
But FINRA panelists during the initial hearing and appeal weren’t buying it, and panelists during the appeal affirmed the original decision. The hearing panel originally ordered Patatian pay nearly $263,000 in restitution to customers in addition to the $458,418 in disgorgement, but the restitution was reversed on appeal.
Western International Securities already agreed to pay $520,000 in restitution to settle FINRA charges it failed to oversee Patatian's improper recommendation of non-traded REITs (he isn't named in the Western settlement, though the description of the broker matches his conduct exactly).
Patatian left Western in March 2020 and has not been affiliated with any firm since then, according to FINRA; he could not be reached for comment. Western did not respond to a request for comment prior to publication.
Western, a division of Atria Wealth Solutions, was also at the heart of the Securities and Exchange Commission’s first charges under Regulation Best Interest in 2022. The commission charged the brokerage firm and five of its reps with recommending and selling “L” bonds, a high-risk debt security, to retail investors and retirees against their best interest.