U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 25982 / April 22, 2024
Securities and Exchange Commission v. Choice Advisors, LLC and Matthias O’Meara, No. 3:21-cv-01669-JO-MSB (S.D. Cal. filed Sept. 23, 2021)
Federal Court Grants SEC Summary Judgment Over Claims That Municipal Advisor Breached Fiduciary Duties Owed to Its School Clients and Entered into Prohibited Fee-Splitting Arrangement
On April 15, 2024, the U.S. District Court for the Southern District of California granted the Securities and Exchange Commission partial summary judgment against a Texas- and Colorado-based municipal advisor, Choice Advisors, LLC, and one of its principals, Matthias O’Meara. The Court principally found that the defendants breached the fiduciary duties owed to their charter school clients, violated Municipal Securities Rulemaking Board (MSRB) rules, unfairly dealt with their clients, and engaged in unregistered municipal advisory activities.
As alleged in the SEC’s complaint, in May 2018, O’Meara left his employment at a national municipal underwriting firm to start Choice, a new municipal advisor focused on charter schools. According to the complaint, O’Meara entered into an impermissible fee-splitting arrangement with his former employer. Such arrangements are prohibited in any offering where the municipal advisor will be providing advice to clients of the underwriter. The SEC further alleged that O’Meara improperly operated in a dual capacity, simultaneously serving as a registered representative for the underwriting firm and as a municipal advisor that owed fiduciary duties to his clients. Additionally, the SEC alleged that Choice and O’Meara unlawfully engaged in municipal advisory activities when they were not registered with the SEC or the MSRB. According to the SEC, the defendants failed to disclose to their clients the conflicts of interest created by their unregistered status and O’Meara’s dual role.
The Court granted partial summary judgment in favor of the SEC on six claims. Specifically, the Court found that the defendants breached their fiduciary duties to their clients by failing to disclose their unregistered status and O’Meara’s simultaneous employment with the underwriting firm and Choice, in violation of Section 15B(c)(1) of the Securities Exchange Act of 1934 and MSRB Rule G-42. The Court also ruled that the defendants’ impermissible fee-splitting arrangement with the underwriting firm violated MSRB Rule G-42. The Court further held that the defendants violated MSRB Rule G-17 by failing to deal fairly with their clients. In addition, the Court ruled that the defendants unlawfully engaged in unregistered municipal advisory activity, and that Choice failed to register with the SEC and the MSRB in violation of Section 15B(a)(1)(B) of the Exchange Act and MSRB Rule A-12. Additionally, the Court found that the defendants’ violations of the MSRB rules constituted violations of Section 15B(c)(1) of the Exchange Act’s prohibition against engaging in municipal advisory activity in contravention of any MSRB rule. In the same order, the Court denied the defendants’ motion for partial summary judgment in its entirety.
The Court had previously denied the defendants’ motion to dismiss the SEC’s complaint on September 13, 2022.
The SEC’s litigation against Choice and O’Meara is led by William Salzmann, Sheila O’Callaghan, and Susan LaMarca of the San Francisco Regional Office. The SEC’s investigation was conducted by Mr. Salzmann and Joseph Chimienti of the Division of Enforcement’s Public Finance Abuse Unit.