SEC Fines Citigroup $18.3 Million for Overcharging Advisory Clients

This was the second time in less than a week that Citigroup has faced regulatory fines.

Citigroup’s investment advisement subsidiary, Citigroup Global Markets, today agreed to dole out $18.3 million to end the U.S. regulator’s allegations that it overbilled about 60,000 advisory clients.

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The Securities and Exchange Commission (SEC) said the bank overcharged clients by approximately $18 million over a 15-year period because it lacked procedures to validate whether clients were properly billed in comparison to fee rates outlined in client contracts, billing histories, and other documents.

The bank was also charged with collecting fees during time periods when clients suspended their accounts, according to the settlement.

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“Advisory clients have every expectation that the fees charged by their financial adviser 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.

Missing advisory contracts

In addition, Citigroup’s wealth management unit also settled allegations that it failed to maintain and preserve 83,000 advisory contracts, which took place from 1990 to 2012. Because it failed to adopt compliance policies and procedures on those missing contracts, Citigroup could not check if clients’ agreed-to advisory fees were correctly input into its billing system. However, the SEC estimated that the bank received nearly $3.2 million in excess fees from advisory clients whose contracts were lost.

This was the second time in less than a week that Citigroup has faced regulatory fines. On January 19, the same unit of the bank paid a $25 million civil monetary penalty to settle charges against Citigroup Global Markets Inc for its role in spoofing and unlawful execution

All affected clients have been reimbursed, and the firm has enhanced its policies and procedures, including discontinuing the use of certain legacy systems, the SEC explained in a statement.

“It’s a fundamental responsibility of a financial adviser 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,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York office.

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