The SEC has announced an enforcement action against Barclays Capital Inc., in which Barclays agreed to settle three sets of violations for overcharging certain advisory clients of its wealth and investment management business by almost $50 million in advisory fees (In the Matter of Barclays Capital Inc., Release No. 33-10355, May 10, 2017).
Violations. The violations allegedly occurred from September 2010 through December 2015. In one instance, Barclays falsely represented that it was performing "ongoing due diligence and monitoring of certain third-party managers who managed advisory clients’ assets using certain investment strategies," when, in fact, it was not performing such due diligence. As a result of this, Barclays improperly charged approximately $48 million in fees from over 2,000 client accounts. Yet another violation occurred when Barclays charged over 22,000 clients approximately $2 million in excess account fees.
Finally, Barclays "disadvantaged certain retirement plan and charitable organization brokerage customers by recommending and selling them more expensive mutual fund share classes when less expensive share classes were available," without disclosing that it would receive greater compensation from the customers’ purchases of the more expensive share classes.
The SEC’s order found that Barclays violated the Investment Advisers Act as well as the Securities Act of 1933.
C. Dabney O’Riordan, co-chief of the SEC Enforcement Division’s Asset Management Unit said, "Barclays failed to ensure that clients were receiving the services they were paying for," and that "Each set of clients who were harmed are being refunded through the settlement."
Without admitting or denying the SEC’s findings, Barclays agreed to create a "Fair Fund" in order to refund the advisory fees to overcharged clients. The fund will consist of over $49.7 million in disgorgement plus over $13.7 million in interest along with a $30 million penalty. Barclays will also refund an additional $3.5 million to those clients who invested in third-party investment managers and investment strategies that underperformed while going unmonitored.
The release is No. 33-10355.
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