The regulator alleges that the bank subsidiary overcharged clients via brokerage and investment management services.
Barclays Capital and the SEC have reached a settlement totaling more than $97 million that will require the broker-dealer to refund clients allegedly overcharged via advisory fees or mutual fund sales.
During the period covered by the settlement, Barclays Capital, a subsidiary of Barclays Group US, was “a dually-registered broker-dealer and investment adviser,” and it offered “high net worth and corporate clients” brokerage and investment management services, according to the SEC order.
In the recently announced SEC enforcement action, Barclays agreed to settle three sets of violations that the regulator alleges represent clients being overbilled by nearly $50 million.
“The SEC’s order finds that two Barclays advisory programs charged fees to more than 2,000 clients for due diligence and monitoring of certain third-party investment managers and investment strategies when in fact these services weren’t being performed as represented,” according to the SEC.
BarCap officials served its advisory clients via “the wrap fee programs it sponsored and administered,” according to the SEC order. “Two Barclays Capital wrap fee programs are at issue here: the Select Advisors Program and the Accommodation Manager Program [the Accommodation Program].”
In addition, BarCap “collected excess mutual fund sales charges or fees from 63 brokerage clients by recommending more expensive share classes when less expensive share classes were available,” according to the SEC.
Alleged Excess Fees
In its order, the SEC says that even though BarCap allegedly did not perform the due diligence, it charged 2,050 client accounts approximately $48 million in fees for promised services, SEC officials say. The SEC is also charging that another 22,138 accounts paid excess fees to Barclays due to miscalculations and billing errors by the firm that amounted to “approximately $2 million,” SEC officials say.
“Additionally, from at least January 2010 through December 2015, Barclays Capital disadvantaged certain retirement plan and charitable organization brokerage customers (eligible customers) by recommending and selling them more expensive mutual fund share classes when less expensive share classes were available, without disclosing that Barclays Capital had a material conflict of interest,” according to the SEC order.
The firm received greater compensation from the “eligible customers’ purchases of the more expensive share classes,” SEC officials say. In addition, BarCap officials did not reveal that the more expensive share classes “would negatively impact the overall return on the Eligible Customers’ investments, in light of the different fee structures for the different fund share classes,” according to the SEC order.
Overall, the SEC’s order finds that Barclays violated key sections of the Investment Advisers Act of 1940 and sections of the Securities Act of 1933, officials say.
Ultimately, BarCap sold its Wealth and Investment Management, Americas business (WIMA), once known as Barclays Wealth Americas, to Stifel Financial Corp., a transaction that was completed in December 2015.
Fair Fund Created
Barclays, without admitting or denying the SEC’s findings, has created a Fair Fund to refund advisory fees to clients, according to SEC and bank officials. “The Fair Fund will consist of $49,785,417 in disgorgement plus $13,752,242 in interest and a $30 million penalty,” according to the SEC.
SEC officials add that Barclays will refund an additional $3.5 million to advisory clients “who invested in third-party investment managers and investment strategies that underperformed while going unmonitored.”
Refunds will also go to brokerage clients who were “steered into more expensive mutual fund share classes,” say SEC officials.
SEC officials say that Gwen Licardo of the Asset Management Unit conducted the investigation, and that Valerie A. Szczepanik of the New York Regional Office supervised the case. SEC investment adviser examiners in the New York Regional Office conducted an examination that led to the investigation, officials say.
A Barclays spokesperson declines to provide further comment on the matter.
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