The Securities and Exchange Commission says Citigroup will pay $18.3 million to settle charges that it overbilled at least 60,000 investment advisory clients over 15 years and misplaced client contracts.
Citi signed off on the latest arrangement just two weeks after New York Attorney General Eric T. Schneiderman said it found that the company overcharged 47,000 clients of managed investment accounts more than $22.5 million; Citi agreed to these findings, repayment of the overcharges and payment of a $1 million penalty.
“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.”
According to his office, the overcharges affected fees that investors negotiated on managed accounts, as well as Citi’s failure to rebate some fees after periods of account inactivity. The firm “identified these overcharges as part of an internal review conducted in cooperation with the attorney general’s investigation.”
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“Advisory clients have every expectation that the fees charged by their financial advisor reflect the negotiated rate. Citigroup failed to take the necessary precautions to ensure clients were billed in a manner consistent with their advisory agreements,” said Andrew M. Calamari, director of the SEC’s New York Regional Office, in a statement.
In addition, the SEC discovered that Citi cannot find some 83,000 advisory accounts opened from 1990 to 2012 and thus could not confirm whether fee rates negotiated by clients when accounts were opened were similar to advisory fee rates being billed to clients over the years.
The regulatory body estimated that Citi received some $3.2 million in excess fees from advisory clients whose contracts were lost.
“It’s a fundamental responsibility of a financial advisor to preserve key account documents such as advisory contracts. Citigroup failed to safeguard its client contracts, which seriously impeded its ability to determine the proper amount of fees the firm was authorized to charge,” explained Sanjay Wadhwa, senior associate director of the SEC’s New York office, in a press release.