SEC hits Citigroup advisory unit with $18.3 million penalty for overbilling clients

From 2000 until 2015, Citigroup overcharged about 60,000 advisory client accounts and was unable to locate another 83,000 client contracts that were opened between 1990 and 2012.

Citigroup Global Markets Inc. agreed to pay $18.3 million to settle Securities and Exchange Commission charges that it overbilled investment advisory clients, the agency announced on Thursday.
From 2000 until 2015, the Citigroup unit overcharged approximately 60,000 advisory client accounts a total of $18 million. The overcharges have since been reimbursed with interest, according to the SEC order.
The SEC also said that Citigroup was unable to locate approximately 83,000 client contracts that were opened between 1990 and 2012 and charged approximately $3.2 million in fees to clients whose contracts were lost.
Under the agreement with the SEC, the firm was censured and will pay a $3.2 million disgorgement, $800,000 in interest and a $14.3 million penalty. It also agreed to remediate all overbilling, set up new advisory agreements with clients whose contracts are missing and put a hyperlink to the SEC order on its website.
“Advisory clients have every expectation that the fees charged by their financial adviser reflect the negotiated rate,” Andrew Calamari, director of the SEC’s New York office, said in a statement. “Citigroup failed to take the necessary precautions to ensure clients were billed in a manner consistent with their advisory agreements.”
The firm said it is moving on.
“We are pleased to have this matter resolved,” Danielle Romero-Apsilos, managing director of Citi Global Public Affairs, said in a statement.
The problem centered in part on the TRAK Fund Solution Program, which consists of wrap-fee accounts. From 2000 through 2014, Citigroup charged approximately 43,000 accounts $13.5 million in excess of the fee set out in client contracts, which were not properly entered into the firm’s computer system.
In addition, between 2001 and 2015, Citigroup charged more than 15,000 advisory clients $3.5 million in fees for advisory services after clients had frozen their accounts.
Citigroup Global Markets has about 43,000 advisory accounts and $22 billion in assets under management. Smith Barney had been a division of Citigroup Global Markets until it was sold to Morgan Stanley.