On May 10, 2017, the SEC announced settled administrative proceedings against Barclays Capital Inc. (Barclays) for improperly charging certain advisory clients of its wealth and investment management business.
According to the SEC order, from September 2010 through December 2014, Barclays falsely represented to advisory clients that it was performing ongoing due diligence and monitoring of certain third-party managers who managed advisory clients' assets in the wrap fee programs sponsored and administered by Barclays, when Barclays was not performing such due diligence. As a result, the SEC alleged that Barclays improperly charged 2,050 client accounts approximately $48 million in fees for these promised services. The SEC also alleged that from January 2011 through March 2015, Barclays charged 22,138 client accounts excess fees of approximately $2 million. Additionally, according to the SEC order, from at least January 2010 through December 2015, Barclays disadvantaged certain retirement plan and charitable organization brokerage customers (Eligible Customers) by recommending and selling them more expensive mutual fund share classes when less expensive share classes were available, without disclosing that Barclays had a material conflict of interest that it would receive greater compensation from the Eligible Customers' purchases of the more expensive share classes. The SEC also alleged that Barclays failed to disclose that the purchase of the more expensive share classes would negatively impact the overall return on the Eligible Customers' investments, in light of the different fee structures for the different fund share classes.
As a result of the foregoing conduct and related compliance and disclosure failures described in the SEC order, the SEC found that, among other things, Barclays violated: (1) Section 206(2) of the Advisers Act, which prohibits an investment adviser from engaging in any transaction, practice or course of business that operates as a fraud or deceit upon a client or prospective client; (2) Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder, which require, among other things, that a registered investment adviser adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act and the rules thereunder by the adviser and its supervised persons; (3) Section 207 of the Advisers Act, which makes it "unlawful for any person willfully to make any untrue statement of a material fact in any registration application or report filed with the Commission ... or willfully to omit to state in any such application or report any material fact which is required to be stated therein"; and (4) Sections 17(a)(2) and 17(a)(3) of the Securities Act, which prohibit any person in the offer or sale of securities from obtaining money or property by means of any untrue statement of material fact or any omission to state a material fact necessary in order to make statements made not misleading, and from engaging in any practice or course of business which operates or would operate as a fraud or deceit in the offer or sale of securities, respectively.
Without admitting or denying the SEC's findings, Barclays agreed to pay "remediation" to advisory clients of approximately $3,504,285 (plus interest), disgorgement of $49,785,417, prejudgment interest of $13,752,242 and a civil monetary penalty of $30,000,000. Barclays also agreed to cease and desist from committing or causing any violations and any future violations of the statute and rules cited in the SEC order and was censured. In imposing the foregoing sanctions, the SEC considered Barclay's cooperation afforded to the SEC staff.
The SEC order is available at: https://www.sec.gov/litigation/admin/2017/33-10355.pdf.