Muni advisor for fined fee-splitting, violation of fiduciary duty
3 min read
The Securities and Exchange Commission has closed out its case against Matthias O’Meara and Choice Advisors, who acted as unregistered municipal advisors and were the first to be charged under MSRB Rule G-42 on the duties of non-solicitor municipal advisors, winning judgments of $312,572 for O’Meara and $187,337 for Choice.
That comes after the U.S. District Court for the Southern District of California
The court also found back that O’Meara breached his fiduciary duty and was in violation of MSRB Rule G-42 for participating in a fee-splitting arrangement by being simultaneously employed by both Choice Advisors and his previous underwriting firm BB&T Securities. The pair also violated MSRB Rule G-17 on fair dealing and MSRB Rule A-12 on registration.
Bloomberg News
In this final judgment, O’Meara was ordered to pay disgorgement and prejudgment interest of $179,081 and a civil penalty of $133,491. Choice Advisors was ordered to pay disgorgement and prejudgment interest of $107,448 and a civil penalty of $79,889.
O’Meara, along with his co-principal Paula Permenter, were registered brokers with BB&T until 2018 when they left the firm to start Choice. Permenter was also charged, but settled the case in 2021.
“Before O’Meara left BB&T, he negotiated a deal with the bank: for every school that O’Meara brought to the bank for underwriting, BB&T would split its underwriter’s fee with O’Meara and Choice,” the decision said. “During his last two weeks at BB&T, O’Meara not only negotiated the above fee-splitting arrangement, but also worked for the bank as an underwriter and for the schools as their municipal advisor.”
He therefore planned to use the arrangement with regards to Bella Mente and Liberty Tree, first time issuers who solicited his services and had planned to use the arrangement for three other schools.
O’Meara knowingly engaged in unregistered municipal advisory activity, as five months after he engaged the charter schools to offer his services, his lawyers notified him that his registration had now been completed, to which O’Meara responded “We are legit!!!”.
But after the Court found that O’Meara and and Choice had violated MSRB Rule G-42, O’Meara continued to minimize the blame and continued to fault the lack of guidance from the SEC and MSRB, the SEC said.
“O’Meara also attempted to shift part of the blame for his registration violations onto the length of the registration process and the delays caused by his lawyers,” the court said. “O’Meara’s testimony after the Court’s summary judgment ruling indicates that he still does not fully appreciate the problematic nature of his actions and his disservice to his clients.”
During an evidentiary hearing on July 17, O’Meara said that his school clients “got what they paid for,” and were charged a fair price in the market and did not complain about the performance.
“His clients did not in fact get what they paid for because they paid for a registered municipal advisor that was legally permitted to provide these services,” the court said. “The Court finds Defendants have not sufficiently understood the wrongfulness of their several breaches of fiduciary duties owed to their clients,” the ruling continued. “The Court therefore concludes that this lack of understanding weighs in favor of an injunction.”
Choice Advisors and O’Meara have not responded to continued requests for comment.
