Press Release Morgan Stanley, Citigroup Charged With Misleading Investors About Forex Trading Program FOR IMMEDIATE RELEASE 2017-30 Washington D.C., Jan. 24, 2017 — The Securities and Exchange Commission today announced that Morgan Stanley Smith Barney and Citigroup Global Markets have agreed to pay more than $2.96 million apiece to settle charges that they made false and misleading statements about a foreign exchange trading program they sold to investors. According to the SEC’s orders, Citigroup held a 49 percent ownership interest in Morgan Stanley Smith Barney at the time, and registered representatives at both firms were pitching a foreign exchange trading program known as “CitiFX Alpha” to Morgan Stanley customers from August 2010 to July 2011. The SEC’s orders find that their written and verbal presentations were based on the program’s past performance and risk metrics, and they failed to adequately disclose that investors could be placed into the program using substantially more leverage than advertised and markups would be charged on each trade. The undisclosed leverage and markups caused investors to suffer significant losses. “Citigroup and Morgan Stanley sold securities in a complex trading program without giving certain investors important information about the risks and costs of the program,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Investors simply cannot be sold investments based on disclosures that are inaccurate or incomplete.” The SEC’s orders find that Morgan Stanley and Citigroup violated Section 17(a)(2) of the Securities Act of 1933, which prohibits obtaining money or property by means of any material misstatement or omission in the offer or sale of securities. Without admitting or denying the SEC’s findings, Morgan Stanley and Citigroup each agreed to pay disgorgement of $624,458.27 plus interest of $89,277.34 and a penalty of $2.25 million for a total of more than $5.9 million combined. The SEC’s investigation was conducted in the Miami office by Eric C. Kirsch and Gary M. Miller with assistance from Amie Riggle Berlin. The case was supervised by Elisha L. Frank. The examination that led to the investigation was conducted by Carlos Gutierrez and supervised by Nicholas A. Monaco and John C. Mattimore of the Miami office.
Press Release Citigroup Paying $18 Million for Overbilling Clients FOR IMMEDIATE RELEASE 2017-35 Washington D.C., Jan. 26, 2017 — The Securities and Exchange Commission today announced that Citigroup Global Markets has agreed to pay $18.3 million to settle charges that it overbilled investment advisory clients and misplaced client contracts. The SEC’s order finds that at least 60,000 advisory clients were overcharged approximately $18 million in unauthorized fees because Citigroup failed to confirm the accuracy of billing rates entered into its computer systems in comparison to fee rates outlined in client contracts, billing histories, and other documents. Citigroup also improperly collected fees during time periods when clients suspended their accounts. The billing errors occurred during a 15-year period, and the 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 M. Calamari, Director of the SEC’s New York Regional Office. The SEC’s order further finds that Citigroup cannot locate approximately 83,000 advisory accounts opened from 1990 to 2012. Without those missing advisory contracts, Citigroup could not properly validate whether the fee rates negotiated by clients when accounts were opened were the same advisory fee rates being billed to clients over the years. It is estimated that Citigroup received approximately $3.2 million in excess fees from advisory 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 authorized 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 undertakings related to its fee-billing and books-and-records practices. The firm is censured and must pay $3.2 million in disgorgement of the excess fees collected due to the missing contracts plus $800,000 in interest and a $14.3 million penalty. The SEC’s investigation has been conducted by Olivia Zach and Celeste Chase in the New York office and supervised by Mr. Wadhwa.
What I am not getting is how much on avergae each client was overbilled / year? Is that less than 100$ of overbilling per client per year ????
"The SEC’s order finds that at least 60,000 advisory clients were overcharged approximately $18 million in unauthorized fees." IE $300/ client...
Was this overbilling per year over 15 years ? That would come to around 20$/client. I am wondering if there is something else to it. The SEC trying to fine what they can, as they might not be able to really fine what is the huge stuff.