SEC Fines Barclays Again: $97MM Is The Second Fine In Under 2
Weeks

As a follow-up to my last article, on Wednesday the SEC
announced that it has fined Barclays Capital more than $97
million for overcharging three sets of clients by almost $50
million.  The violations took place from September 2010 –
December 2015.

This was the second time in less than two weeks that the SEC
has fined Barclays.  Just nine days earlier, the SEC fined
Barclays over $12.7 million for
RMBS supervisory failures.

The recent action brings the total amount of fines that the
SEC has imposed on Barclays in the last two weeks to
approximately $110 million.

The Three New Sets Of Violations

The
SEC’s Order
imposing sanctions describes the three sets of defrauded
clients as follows:

1. Advisory clients in wrap fee programs who received
   brochures, marketing materials, and client agreements that
   falsely informed them that Barclays would perform due
   diligence on, and ongoing monitoring of, certain third-party
   managers who would be managing the clients’ assets. 
   Barclays did not do the due diligence or ongoing monitoring,
   yet it charged clients who were invested in those programs
   approximately $48 million in advisory fees.  In addition,
   the SEC found that Barclays did not have written policies
   and procedures in place that were reasonably designed to
   prevent the due diligence misrepresentations in connection
   with the wrap fee programs.
2. Customers who were charged excess fees of approximately $2
   million.  According to the Order, these overcharges occurred
   for several reasons, among them:  (a) inadequate valuation
   controls; (b) human error; and (c) lack of appropriate
   oversight of Barclays’ account management and billing
   operations.
3. Retirement plan and charitable organization brokerage
   customers to whom Barclays recommended and sold more
   expensive classes of mutual fund shares, even though less
   expensive classes were available, without disclosing to them
   that Barclays would receive greater compensation from the
   sales of the more expensive shares.  The Order refers to the
   undisclosed higher compensation as a “material conflict of
   interest”.  In some instances, Barclays charged certain
   mutual fund clients up-front sales charges or “loads”
   without informing them that they were eligible to have those
   up-front charges waived.

Refunds To Harmed Clients

The SEC found that Barclays’ conduct violated the Securities
Act of 1933, the Securities Exchange Act of 1934, and the
Investment Advisers Act of 1940.

In settling with the SEC, among other things Barclays agreed
to pay disgorgement of more than $49.7 million, prejudgment
interest of over $13.7 million, and a civil monetary penalty
of $30 million.

The Order requires Barclays to deposit more than $93.5 million
into a “Distribution Fund” to be held in escrow.

In an
SEC press release
about the Order, the Co-Chief of the SEC Enforcement
Division’s Asset Management Unit stated:  “Each set of clients
who were harmed are being refunded through the settlement.”

* * *

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