A federal judge in California has denied municipal advisor Matthias O'Meara and his firm Choice Advisors' move to dismiss the Securities and Exchange Commission charges that the firm was engaged in unregistered municipal advisor activities in violation of Municipal Securities Rulemaking Board Rule G-42.
The charges brought by the SEC
"The Court held oral argument on the motion on September 7, 2022," an order dated Sept. 13 said. "For the reasons stated on the record at the oral argument, the Court denies the motion."
O'Meara and Choice Advisors'
They also point to the fact that the MSRB has not defined "fee splitting" in Rule G-42 and that the alleged conduct is not backed up by any existing legal definition.
They also claim that dictionary definition shows that the conduct alleged was not prohibited, that the SEC's choice to omit part of its chosen definition undermines its point and that a lack of any definition of fee splitting undermines due process.
The SEC complaint alleges that up until 2018, Choice Advisors co-principals O'Meara and Paula Permenter were employed at a national municipal underwriting firm before breaking off to start Choice.
The Commission then found that O'Meara and Permenter entered into a prohibited fee splitting arrangement with their former employer and did so without disclosing the arrangement or their relationship to their clients.
On top of the fee splitting arrangement, the SEC claims that Choice, O'Meara and Permenter engaged in municipal advisor activities when they were not registered with the SEC or MSRB.
The Commission claims that Choice was brought on to provide services to four charter schools, all of whom were inexperienced in matters of municipal finance and that O'Meara and Permenter failed to disclose to the schools the fact that they were unregistered.
Without admitting or denying the findings, Permenter chose to settle with the Commission and consented to the order finding she violated municipal advisor rules concerning registration and duties of non-solicitor municipal advisors.
Permenter agreed to pay a $26,000 penalty, participate in training on the duties of non-solicitor municipal advisors and will have her third party engagement letter reviewed by a third party for one year.
The SEC is still seeking permanent injunctions, disgorgement, and prejudgment interest against Choice and O'Meara.
