The Securities and Exchange Commission (SEC) recently issued an enforcement action against Barclays Capital, alleging three sets of violations that resulted in customers being overcharged by almost $50 million.
Barclays reached a settlement with the agency worth $97 million requiring the company to refund affected customers amounts they were overcharged through advisory fees or mutual fund sales charges.
“Barclays failed to ensure that clients were receiving the services they were paying for,” SEC Enforcement Division Co-Chief C. Dabney O’Riordan said in a press release. “Each set of clients who were harmed are being refunded through the settlement.”
Without admitting or denying the SEC’s findings, Barclays agreed to create a “Fair Fund,” consisting of $49,785,417 in disgorgement plus $13,752,242 in interest and a $30 million penalty. Barclays was also ordered to refund an additional $3.5 million to advisory clients who invested in third-party investment managers and investment strategies that underperformed while going unmonitored to be allocated to brokerage clients who were steered into more expensive mutual fund share classes.
“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,” the release states. “Barclays also 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.”
The SEC’s order states that Barclays violated sections 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-7. It also states that the company violated sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.
The enforcement action came a little more than a week after the SEC ordered Barclays to pay more than $16.5 million to settle charges that the company failed to properly supervise two of its former mortgage bond traders who allegedly “made false or misleading statements to Barclays RMBS (residential mortgage-backed securities) customers, including false or misleading about the price at which Barclays had bought the securities; the amount of profit Barclays was making for facilitating the trades; and who owned the securities, including creating a fictional third-party to create the appearance of price negotiations,” according to the SEC.