The SEC alleges that Citi overcharged investment advisory clients and misplaced 83,000 contracts while pocketing $3.2 million in excess fees.
The SEC reports that Citigroup Global Markets Inc. (CGMI) has agreed to pay $18.3 million for over-billing investment advisory clients and misplacing client contracts.
In fact, the SEC contends that “at least 60,000 advisory clients were overcharged approximately $18 million in unauthorized fees because Citigroup failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents.”
Furthermore, the commission says, Citigroup also “improperly collected fees during time periods when clients suspended their accounts.”
Those improper fee collections “occurred during a 15-year period, and the affected clients have since been reimbursed,” the regulator adds.
The $18.3 million penalty exacted by the SEC follows upon a recent $25 million penalty levied against Citigroup Global Markets by the CFTC for spoofing (the practice of “bidding or offering with the intent to cancel the bid or offer before execution”) in various U.S. Treasury futures products on the Chicago Mercantile Exchange (CME), in the period between July 16, 2011 and December 31, 2012.
In the most recent charges, those that accompany the $18.3 million penalty, the SEC also finds that Citigroup “cannot locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012.”
The SEC points out that without those 83,000 contracts, Citigroup “could not properly validate whether the fee rates negotiated by clients when accounts were opened were the same advisory fee rates being billed to clients over the years. It is estimated that Citigroup received approximately $3.2 million in excess fees from advisory clients whose contracts were lost.”
The commission’s order describes the overcharges and the misplaced contracts as “willful” violations. “A willful violation of the securities laws means merely ‘that the person charged with the duty knows what he is doing,’ ” SEC the order specifies.
For a period of three years, CGMI “agrees to research and remediate the full scope and impact of all advisory fee overbilling errors discovered in the United States-based advisory business conducted through or by CGMI within 6 months from the date of discovery; if CGMI is unable to remediate the error within 6 months, CGMI shall make a report to the [SEC] staff … and shall remediate those issues as promptly as possible.”
In addition, CGMI “agrees to provide a quarterly written report to the staff concerning advisory fee overbilling errors that have been discovered in the United States-based advisory business conducted through or by CGMI and … that affect more than one unrelated advisory account, which report shall include or describe: (i) the nature and cause of the fee overbilling; (ii) the amounts overbilled; (iii) the number of accounts overbilled; (iv) how the error was discovered; (v) the date of discovery; (vi) the status and/or date of remediation; and (viii) the amount of the remediation with interest,” per the commission.
Citigroup Global Markets has been registered with the SEC since 1960, as both an investment adviser and a broker-dealer, and currently has approximately 43,000 advisory accounts and $22 billion in regulatory assets under management.
FTF News contacted Citigroup about this latest mulct, and particularly about the SEC’s allegation that the overcharges and misplaced contracts that drew the penalty were “willful.”
“We are pleased to have this matter resolved,” a Citigroup press representative replied.
Need a Reprint?