A Citigroup-affiliated investment advisory firm has agreed to pay $18 million to settle SEC charges that it overcharged client accounts (In the Matter of Citigroup Global Markets Inc., Release No. 34-79882, January 26, 2017).
TRAK Fund. Citigroup Global Markets, Inc. (CGMI) and its predecessor Salomon Smith Barney operated a wrap fee investment advisory program called the TRAK Fund Solution Program. According to the SEC, CGMI charged 43,000 of its TRAK Fund advisory clients fees at a higher rate than the fee that was disclosed to them. Other clients were also charged fees when their accounts were transferred between branches, without notification to the clients. In addition, approximately 800 retirement accounts were charged $10,000 in advisory fees when certain fee reductions were not applied in a particular quarter, the SEC alleged.
Frozen advisory accounts. CGMI also overcharged clients by $3.5 million in fees for advisory services after those clients had temporarily suspended their accounts, according to the SEC. This resulted in 16,000 accounts being overbilled.
Post-migration accounts. In 2009, Morgan Stanley and Citigroup entered into a joint venture (MSSB). According to the SEC, after advisory accounts were migrated to MSSB, CGMI changed the investment platform used for its remaining accounts. CGMI overcharged the accounts on the new platform provider in several ways, including failing to provide investors with a lower negotiated advisory rate, rounding rates up, and giving financial advisers the discretion to charge an additional 25 percent fee.
Charges and sanctions. The SEC charged CGMI with violating the antifraud, books and records, and internal control provisions of the Advisers Act. To settle the charges, CGMI agreed to pay $3.2 million in disgorgement, as well as $800,000 in prejudgment interest. CGMI also agreed to pay a $14.3 million civil penalty. In addition, the firm agreed to be censured and to cease and desist from future violations. CGMI agreed to a number of undertakings designed to improve its billing practices and its books and records procedures. It did not admit or deny the SEC’s findings.
The release is No. 34-79822.
Companies: Citigroup Global Markets, Inc.
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