The US Securities and Exchange Commission (SEC) found that Citigroup failed to ensure that the billing rates entered into its computer system were accurate and reflected the rates outlined in client contracts and billing histories.
Citigroup also charged clients fees even after they had suspended their accounts.
The US regulator found that at least 60,000 clients were overcharged approximately £18m. Affected clients have since been reimbursed.
“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 Calamari, director of the SEC’s New York Regional Office.
Lost contracts
The SEC’s order also found that Citigroup could not locate approximately 83,000 advisory contracts for accounts opened from 1990 to 2012.
Without those missing contracts, the firm could not properly validate whether the fee rates negotiated by clients when accounts were opened were the same rates being billed over the years.
It is estimated that Citigroup received approximately $3.2m in excess fees from clients whose contracts were lost.
“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 authorised to charge,” said Sanjay Wadhwa, senior associate director of the SEC’s New York office.
Citigroup consented to the SEC’s cease-and-desist order and agreed to pay $3.2m in disgorgement of the excess fees collected due to the missing contracts plus $800,000 in interest and a $14.3m penalty.
