9th Circuit upholds ruling against a municipal advisory firm for illegally splitting fees with a…
United States Securities and Exchange Commission v. Choice Advisors, LLC
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9th Circuit upholds ruling against a municipal advisory firm for illegally splitting fees with a bank underwriter, affirming an injunction, disgorgement, and civil penalties.
Why it matters
The Ninth Circuit affirmed a district court ruling against Choice Advisors, LLC and its owner Matthias O'Meara, finding they violated securities laws by entering an illegal fee-splitting arrangement with a bank underwriter and breaching their fiduciary duties as municipal advisors. The court held that their agreement to share underwriting fees created a conflict of interest that MSRB Rule G-42 was specifically designed to prevent. The court also upheld the remedies imposed, including a permanent injunction, disgorgement of profits, and civil penalties.
Who it affects
This ruling directly affects municipal advisors and financial firms that provide advisory services on municipal securities transactions, reminding them that fee-sharing arrangements with underwriters are broadly prohibited under MSRB rules. Charter schools, local governments, and other municipal entities that rely on advisors to guide them through securities transactions are also affected, as the ruling reinforces that advisors must act in their clients' best interests free from financial conflicts.
What happens next
Current
Decision issued Jul 21, 2026
Unpublished opinion
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- Decision issued Jul 21, 2026Unpublished opinion
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Jul 21, 2026 · Unpublished opinion
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DEEPER READ
This case asked whether a municipal advisory firm violated securities and MSRB rules by agreeing to split underwriting fees with a bank, and whether the remedies imposed by the district court were appropriate. Choice Advisors and its owner O'Meara had an agreement with BB&T under which BB&T would share part of its traditional 2% underwriting fees with Choice Advisors for every client Choice referred to BB&T for underwriting services. The clients were often charter schools that had hired Choice as their municipal advisor. The Ninth Circuit agreed with the district court that this arrangement constituted an illegal fee-splitting arrangement under MSRB Rule G-42(e)(1)(D). The court relied on the plain language of the rule, which broadly prohibits 'making, or participating, in any fee-splitting arrangement.' Using dictionary definitions, the court explained that fee-splitting means paying part of a fee to the person who made the referral. The court rejected the appellants' argument that the payment structure, in which fees went to both parties simultaneously rather than as a referral payment, made the arrangement legal. What mattered, the court said, was the existence of the agreement itself, because it created a financial incentive for Choice to steer clients toward BB&T regardless of whether that was in the clients' best interest, creating exactly the conflict of interest the rule was meant to prevent. On remedies, the court found no abuse of discretion in the permanent injunction against future securities law violations. The district court had weighed the appropriate factors and found that the appellants were likely to violate the law again because they planned to keep providing municipal advisory services, they did not fully appreciate that their conduct was wrong, and they had failed to police themselves even while taking some precautions. The court also rejected the appellants' argument that their conduct was mere negligence insufficient to justify an injunction, noting that they had disregarded compliance requirements such as registering with appropriate agencies and had knowingly acted in dual roles as both advisor and underwriter. The court also upheld the disgorgement of ill-gotten gains, describing them as profits the appellants were never entitled to receive. The source text does not reflect any dissent from any member of the panel.
CITATION AND RECORD
Record source: CourtListener
NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 21 2026 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT UNITED STATES SECURITIES AND No. 24-6447 EXCHANGE COMMISSION, D.C. No. 3:21-cv-01669-JO-MSB Plaintiff - Appellee, v. MEMORANDUM* CHOICE ADVISORS, LLC; MATTHIAS O'MEARA, Defendants - Appellants. Appeal from the United States District Court for the Southern District of California Jinsook Ohta, District Judge, Presiding Submitted November 19, 2025 Submission Vacated January 15, 2026 Resubmitted July 21, 2026** Pasadena, California Before: CLIFTON, BYBEE, and DE ALBA, Circuit Judges. Appellants, Matthias O’Meara and his company Choice Advisors, LLC, * This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). appeal part of the district court’s summary judgment order and the remedies imposed against Appellants for violating Securities and Municipal Securities Rulemaking Board (“MSRB”) laws and for breaching their fiduciary duties in providing municipal advisory services. We have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm. We review a district court’s grant of summary judgment de novo. SEC v. Husain, 70 F.4th 1173, 1180 (9th Cir. 2023). The district court’s determination of remedies is reviewed for abuse of discretion. See SEC v. Murphy (Murphy II), 50 F.4th 832, 842 (9th Cir. 2022) (civil penalties and injunction); SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072, 1096 (9th Cir. 2010) (disgorgement). 1. Appellants challenge the district court’s finding that their agreement with BB&T constitutes an illegal fee-splitting arrangement under MSRB Rule G- 42(e)(1)(D). The district court correctly determined that this agreement constitutes an illegal fee-splitting arrangement. When the interpretation of a statute is at issue, the analysis begins with the plain language of the statute. United States v. Johnson, 680 F.3d 1140, 1144 (9th Cir. 2012). By its plain language, the Rule broadly prohibits “making, or participating, in any fee-splitting arrangement . . . .” MSRB Rule G-42(e)(i)(D) (emphasis added). Although the provision does not define “fee-splitting,” dictionaries define it as “payment by a specialist (such as a doctor or a lawyer) of a part of his or her fee to the person who made the referral,” 2 24-6447 or “giving to a colleague who makes the referral part of the fee charged to a referred client or patient.”1 This supports the district court’s finding that the provision broadly prohibits all fee division agreements between municipal advisors and bank underwriters. Here, the undisputed record shows that Appellants and BB&T agreed that BB&T would split its traditional 2% underwriting fees with Appellants for every client Appellants referred to BB&T for underwriting services. The record also shows that the arrangements between BB&T and Choice involved municipal securities transactions where the charter schools retained Choice as municipal advisor, Choice engaged in advising activities, and BB&T was the underwriter for these securities transactions. Appellants argue that their agreement with BB&T does not fall under the prohibitions of Rule G-42 because the underwriting fee payment was structured to go to both parties simultaneously. But how a fee-splitting payment is structured is irrelevant. What matters is the existence of a fee-splitting agreement between an underwriter and a municipal advisor because its existence creates a self-interested financial incentive for the municipal advisor to direct its clients to a particular bank 1 See Merrian-Webster.com, https://www.merriam- webster.com/dictionary/fee%20splitting (last visited October 3, 2025) https://perma.cc/AE47-AGAV, and Collinsdictionary.com, https://www.collinsdictionary.com/dictionary/english/fee-splitting (last visited October 3, 2025) https://perma.cc/J2PC-X6YR, respectively. 3 24-6447 underwriter thereby, creating a conflict of interest—precisely what MSRB Rule 42 was created to prevent. See MSRB Rule G-42(a)(ii) (stating that municipal advisors are subject to fiduciary duties); SEC v. Cap. Gains Rsch. Bureau, Inc., 375 U.S. 180, 194 (1963).2 Thus, the district court did not err in finding Appellants’ fee-splitting arrangement illegal. 2. Appellants also challenge the remedies imposed against them which include injunctive relief, disgorgement, and civil penalties. The district court did not abuse its discretion in permanently enjoining Appellants from future violations of the federal securities laws. The district court properly evaluated the Murphy factors to determine whether there was “a reasonable likelihood of future violations of the securities laws,” and correctly concluded that the factors favored a permanent injunction. SEC v. Fehn, 97 F.3d 1276, 1295–96 (9th Cir. 1996) (quoting SEC v. Murphy, 626 F.2d 633, 655 (9th Cir. 1980)). Specifically, the district court correctly found that Appellants were likely to violate securities laws in the future because they planned to continue providing municipal advisory services to, often unsophisticated, charter school clients; they failed to fully appreciate the wrongfulness of their conduct; and despite taking precautions and 2 Appellants try to “incorporate” by reference a Due Process argument presented to the district court in their motion to dismiss. This argument is waived because Appellants failed to brief it in their opening brief. See also Ninth Cir. R. 28(a)(8), 28-1(b); Fed. R. App. P. 28(a)(8); Retlaw Broad. Co. v. N.L.R.B., 53 F.3d 1002, 1005 n.1 (9th Cir. 1995). 4 24-6447 not intending to cheat their clients, they still failed to police themselves and knowingly and actively violated securities laws. See Murphy, 626 F.2d at 655; Fehn, 97 F.3d at 1296. Appellants’ assertions that their conduct constitutes simple negligence and therefore, not enough to warrant a permanent injunction are mistaken. Appellants’ actions constitute more than simple negligence because they acted with disregard in following compliance regulations, such as registering with the appropriate agencies, and actively and knowingly engaged in municipal advisory activities and acted in a dual capacity as an underwriter and an advisor, among other things. Although scienter must be proved before an injunction is granted when scienter is an element of the substantive provisions sought to be enjoined—which is not the case here—proof of scienter is not required otherwise. See Aaron v. SEC, 446 U.S. 680, 701 (1980); Murphy, 626 F.2d at 654. Thus, the district court acted within its discretion in issuing the permanent injunction. The district court also did not abuse its discretion in ordering disgorgement and prejudgment interest of the ill-gotten gains from Appellants’ violations. Afterall, these are gains that Appellants were not entitled to receive in the first plac
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