Citigroup building in New York. (Photo: AP)

New York Attorney General Eric T. Schneiderman says it has found that Citigroup overcharged 47,000 clients of managed investment accounts to the tune of more than $22.5 million.

Citi has agreed to the findings. In addition, it will report fee overcharge issues to the attorney general’s office for the next three years and pay a penalty of $1 million.

“Our investigation put $22.5 million rightfully back in the hands of customers in New York and across the country,” said Schneiderman, in a statement on Thursday. “We appreciate Citi’s cooperation with our investigation and its commitment to ensuring investors are paid back what they are owed — which sets an example for other financial institutions.”

His office says the overcharges affected fees clients negotiated on managed accounts, and Citi’s failure to rebate some fees to clients after periods of inactivity. The firm “identified these overcharges as part of an internal review conducted in cooperation with the attorney general’s investigation.”

Tracking History

In 2012, a client of Citigroup Global Markets in Westchester complained about the excess fees, prompting the beginning of the investigation. Citi started reimbursing clients in 2014.

Citi first identified more than 31,000 customers with close to $17 million in principal and interest overcharges on so-called “TRAK” accounts. These clients typically pay a fee for advisory services ranging from 1% to 1.5% of assets.

“However, the fees were negotiable, and many customers were able to obtain a lower fee than the standard rate,” according to the New York attorney general. “An inquiry into that process, though, determined that many customers were unaware that they were being charged higher-than-negotiated rates.”

During a wider review, Citi found cover charges on another 948 non-TRAK accounts; it repaid the affected clients about $1 million. In addition, it identified more than 15,000 additional Citi accounts with overcharges during periods of inactivity and reimbursed them for about $4.6 million in principal and interest.

TRAK accounts held by most clients in 2009 moved to Morgan Stanley as part of the Morgan Stanley Smith Barney merger, though Citi kept opening them through 2011 — when any remaining accounts were moved to the company’s Managed Mutual Fund program.

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