After finding that Citigroup Global Markets overbilled clients over a 15-year period, the SEC reached agreement with the firm to pay $18.3 million to settle the charges of overbilling and an additional charge that it misplaced client contracts for approximately 83,000 investment advisory accounts opened between 1990 to 2012.
Investigators said that Citigroup overcharged at least 60,000 advisory clients approximately $18 million in unauthorized and/or excessive fees, and that the firm received approximately $3.2 million in excessive fees from clients whose contracts were lost. The settlement includes a censure, $3.2 million in disgorgment of excess fees collected due to the missing contracts, $800,000 in interest, and a $14.3 million penalty. Citigroup additionally consented to a cease-and-desist order, and agreed to modify its fee-billing and books-and-records practices.
The findings state that from 2000 through 2014, Citigroup charged about 43,000 clients fees in excess of what had been negotiated, resulting in $13.5 million in overcharges.
According to the report, 16,000 investors were charged a higher advisory fee than the rate disclosed to them, resulting in an $8.7 million payments of excessive fees, that investigators say were related to the firm's wrap fee investment advisory program known as the TRAK Fund Solution Program.
ALSO SEE: WFG Advisors Fined $100k for Excessive Wrap Program Commissions (June 2016)
The report also states that 6,000 TRAK accounts were overcharged approximately $3.8 million when fee rates were raised without any authorization or notification as a result of account transfers between Citigroup branches: the investigation found that a system feature caused client advisory fees to default to a standard rate upon the transfer's occurrence, meaning that clients who had negotiated lower rates were suddenly charged a higher rate without any authorization or notification of this change.
Investigators found that Citigroup failed to provide rebates of pre-paid advisory fees upon account termination ($1 million in excessive payments), overcharged 800 retirement accounts by failing to apply certain quarterly fee reductions ($10,000 in excessive fees), and overbilled approximately 15,000 advisory clients about $3.5 million in fees for advisory services after those clients had temporarily suspended their advisory accounts.
In other words, investigators found that even when clients had frozen their accounts, Citigroup nonetheless continued to collect excessive fees from them.
When it came to locating certain contracts so as to determine negotiated fee rates, the SEC's order stated that Citigroup was "unable to locate" 83,000 missing advisory contracts for accounts opened between 1990 and 2012 and "cannot determine" whether or not it overbilled clients invested in these 83,000 accounts, due to the missing paperwork; without the contracts, the negotiated fee rates are unknown.
If you have invested with Citigroup Global Markets or with any firm, broker or financial adviser whose failure to maintain important forms, contracts, and similar paperwork—such as a contract specifying the terms of investment, advisory and commission rates and fees—or whose overbilling activity (including a failure to apply appropriate rebates or credits) has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.