The Securities and Exchange Commission today charged a Texas- and Colorado-based municipal advisor, Choice Advisors, LLC, and its two principals, Matthias O'Meara and Paula Permenter, with violating their duties, engaging in unregistered municipal advisory activities, and related misconduct with respect to Choice's charter school clients. The actions are the first-ever SEC cases enforcing Municipal Securities Rulemaking Board Rule G-42 on the duties of non-solicitor municipal advisors.

The SEC's complaint alleges that, in May 2018, O'Meara and Permenter left their employment at a national municipal underwriting firm to start Choice, a new municipal advisor focused on charter schools. According to the SEC's complaint and order, O'Meara and Permenter entered into an impermissible fee-splitting arrangement with their former employer. Such arrangements are prohibited in any offering where the municipal advisor will be providing advice to clients of the underwriter. Moreover, O'Meara and Permenter allegedly did not adequately disclose to their clients the conflicts of interest associated with the illicit arrangement or their relationship with the underwriting firm. The SEC also alleges that Choice, O'Meara, and Permenter unlawfully engaged in municipal advisory activities when they were not registered with the SEC or MSRB.

The SEC's complaint alleges additional misconduct by O'Meara. While still employed at the underwriting firm, O'Meara allegedly improperly operated in a dual capacity, simultaneously serving as a registered representative for the underwriting firm, and also as a municipal advisor where he purported to serve as two clients' fiduciary. As alleged in the complaint, O'Meara took steps to increase the overall fees paid by the clients in a way that would enrich himself and Choice, ultimately costing one school approximately $40,000 in additional fees.

The SEC's complaint, filed in U.S. District Court for the Southern District of California, charges Choice and O'Meara with violating Sections 15B(a)(5) and 15B(c)(1) of the Securities Exchange Act of 1934 and MSRB Rules G-17 and G-42; additionally charges Choice with violating Section 15B(a)(1) of the Exchange Act and MSRB Rule A-12; and further charges O'Meara with aiding and abetting Choice's violations of Sections 15B(a)(1) and 15B(c)(1) of the Exchange Act and MSRB Rule A-12. The complaint seeks permanent injunctions, disgorgement with prejudgment interest, and civil penalties. Permenter, who agreed to settle with the SEC, consented, without admitting or denying any findings, to the entry of an SEC order finding that she violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-42, and caused Choice's violations of Sections 15B(c)(1) and 15B(a)(1) of the Exchange Act and MSRB Rules G-42 and A-12; censuring Permenter; ordering her to pay a $26,000 penalty; and requiring that she participate in training on the duties of non-solicitor municipal advisors as well as have her engagement letters reviewed by a third party for a period of one year.

These actions add to a number of recent SEC enforcement actions against municipal advisors who provide services to school clients.

The SEC's investigation was conducted by William T. Salzmann and Joseph Chimienti of the Public Finance Abuse Unit, and was supervised by Jason H. Lee. The SEC's litigation will be led by Andrew Hefty, Sheila O'Callaghan, and Mr. Salzmann. The SEC acknowledges the assistance of the Municipal Securities Rulemaking Board.