U.S. District Court Grants SEC Summary Judgment Against Muni Advisor for Fee-Splitting Arrangement

The U.S. District Court for the Southern District of California granted the SEC partial summary judgment against a Texas- and Colorado-based municipal advisor and one of its principals for entering into an impermissible fee-splitting arrangement and failing to disclose conflicts of interest.

In its Complaint, the SEC alleged that the principal, upon ending his employment at a national municipal underwriting firm to start a new municipal advisor focused on charter schools, entered into an impermissible fee-splitting arrangement with his former employer. The SEC further alleged that he 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. The SEC alleged that the defendants unlawfully engaged in municipal advisory activities when they were not registered with the SEC or the MSRB and failed to disclose to their clients the conflicts of interest created by their unregistered status and the principal’s dual role.

The Court granted partial summary judgment on the claims and found that the defendants violated Exchange Act Section 15B(a)(1)(B) and 15B(c)(1) ("Municipal securities"), as well as MSRB Rules G-42 ("Duties of Non-Solicitor Municipal Advisors"), G-17 ("Conduct of Municipal Securities and Municipal Advisory Activities") and A-12 ("Registration").