On May 10, Barclays Capital settled with the Securities and Exchange Commission on charges that it had overcharged clients by nearly $50 million and overcharged clients because of accounting errors.
Although Barclays agreed to the settlement, it did not admit or deny the charges. Instead, it agreed to refund advisory fees or mutual fund sales charges to overcharged clients. The settlement will cost the firm more than $97 million, which the company will put into a fund to refund advisory fees to overcharged clients.
According to Investment News, the fund will consist of $49.8 million in disgorgement plus $13.8 million in interest and a $30 million penalty. Barclays will also refund $3.5 million to advisory clients who invested in third-party investment managers and underperforming investment strategies that had gone unmonitored despite the company’s promise to perform due diligence for those investors. Brokerage clients who were steered into more expensive mutual fund shares will also get refunds.
The brokerage firm also allegedly collected excessive mutual fund sales charges or fees from 63 brokerage clients, including retirement plans and charitable organizations; and charging 22,138 accounts excess fees due to miscalculations and billing errors.
The SEC said the activities in its order occurred from September 2010 through December 2015.
“First, Barclays Capital had inadequate controls around valuation of advisory client assets, leading to, in some cases, stale prices for securities, or overpriced securities,” the SEC’s order read. “As a result, Barclays Capital used inaccurate and, in some cases, inflated market values to calculate its advisory fees for certain client accounts. Second, Barclays Capital used multiple disparate data and account management systems and relied, to a large degree, on manual processes and manual workarounds for specific processes, which led to human error, and incorrect calculations.”
The SEC’s order said that two Barclays advisory programs charged fees to more than 2,000 clients for what was supposed to be due diligence and monitoring of third-party investment managers and investment strategies, but those services weren’t being performed.
