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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