Barclays Agrees To Pay $97.1 Million To Settle Violations Charges That It Overbilled Clients

• Posted on: May 15 2017

On May 10, 2017, the Securities and Exchange Commission (“SEC”) announced the settlement of an enforcement action against Barclays Capital, Inc. (“Barclays”), the London-based bank, to refund advisory fees and/or mutual fund sales charges to clients who were overcharged by the bank in connection with two advisory programs.

Barclays agreed to pay more than $97 million to settle three sets of violations that resulted in clients being overcharged by nearly $50 million.  In the Order Instituting Administrative and Cease-and-Desist Proceedings, the SEC found that between 2010 and 2015, the bank’s former wealth-management business 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 the business unit did not perform the represented services. The SEC also found that Barclays 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.  Another 22,138 accounts paid excess fees to Barclays due to miscalculations and billing errors by the firm.

“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.  “Each set of clients who were harmed are being refunded through the settlement.”

The SEC found that 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.

Barclays agreed, without admitting or denying the SEC’s findings, to create a Fair Fund to refund advisory fees to harmed clients.  The Fair Fund will consist of $49,785,417 in disgorgement, plus $13,752,242 in interest and a $30 million penalty.  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.  Those funds will also go to brokerage clients who were steered into more expensive mutual fund share classes.

Earlier this month, the SEC announced that Barclays agreed to pay more than $16.5 million as part of a settlement stemming from allegations that the bank failed to supervise two former mortgage bond traders who allegedly lied to and overcharged Barclays’ non-agency residential mortgage-backed securities clients.

The current settlement was announced on the same day that Barclays’ chief executive officer Jes Staley apologized to shareholders during the bank’s annual meeting for attempting to identify a whistleblower last year after the bank received two anonymous letters that involved a former colleague of Staley’s at JPMorgan Chase whom Staley had hired. Barclays revealed last month that Staley was under investigation by regulators and faced a “very significant” pay cut and a formal written reprimand over the incident.