Barclays Capital has agreed to pay more than $97 million to settle charges levied against it by the SEC for overcharging clients.
“Barclays failed to ensure that clients were receiving the services they were paying for,” said C. Dabney O’Riordan, co-chief of the SEC Enforcement Division’s Asset Management Unit in a statement. “Each set of clients who were harmed are being refunded through the settlement.”
Without admitting or denying the charges, Barclays agreed to create a fair fund to refund advisory fees to affected clients. The fund will consist of just under $50 million in disgorgement, plus nearly $13.8 million in interest, and a $30 million penalty. Barclays will directly refund an additional $3.5 million to advisory clients who invested in third-party investment managers and investment strategies that underperformed while going unmonitored. Those funds also will go to brokerage clients who were guided into more expensive mutual fund share classes.
The SEC said Barclays violated Sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7 as well as Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.
Section 206(2) prohibits an investment adviser from engaging in any transaction, practice, or course of business that operates as a fraud or deceit upon a client or prospective client.
Section 206(4) and Rule 206(4)-7 require that a registered investment adviser adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder by the adviser and its supervised persons.
Section 207 makes it “unlawful for any person willfully to make any untrue statement of a material fact in any registration application or report filed with the Commission . . . or willfully to omit to state in any such application or report any material fact which is required to be stated therein.”
Sections 17(a)(2) and 17(a)(3) prohibit any person in the offer or sale of securities from obtaining money or property by means of any untrue statement of material fact or any omission to state a material fact necessary in order to make statements made not misleading, and from engaging in any practice or course of business which operates or would operate as a fraud or deceit in the offer or sale of securities, respectively.
According to the SEC, from September 2010 through December 2015, Barclays Capital, then a dually-registered investment adviser and broker-dealer, overcharged certain advisory clients of its wealth and investment management business.
“Barclays Capital falsely represented to advisory clients that it was performing ongoing due diligence and monitoring of certain third-party managers,” said the SEC in an administrative proceeding against Barclays.
As a result, said the SEC, Barclays Capital improperly charged 2,050 client accounts approximately $48 million in fees for the promised services. It also said that from January 2011 through March 2015, Barclays Capital charged more than 22,000 client accounts excess fees of approximately $2 million. Additionally, from January 2010 through December 2015, the investment bank allegedly “disadvantaged certain retirement plan and charitable organization brokerage customers by recommending and selling them more expensive mutual fund share classes when less expensive share classes were available.”
Tags: Barclays, Regulations, SEC