SEC Cases: Citigroup to Pay $18.3M for Overbilling Clients, Strategic Capital Management is Banned Following $1.3M Cherry Picking Scam, & 10 Investment Advisory Firms Settle Pay-to-Play Violation Charges Involving Pension Fund Fees

Citigroup is Accused of Overcharging At Least 60 Investment Advisory Clients
Citigroup Global Markets (C) will pay $18.3M to resolve Securities and Exchange Commission charges accusing the firm of overbilling clients and misplacing client contracts. According to the regulator’s order, at least 60,000 investment advisory clients were overcharged about $18M in unauthorized fees because Citigroup did not confirm the accuracy of the billing rates in its computer systems compared to the fees noted in client contracts and other documents. The firm also purportedly improperly collected fees even when clients suspended their accounts. The SEC says that the billing mistakes took place over a 15-year period.

The regulator also contends that the investment advisory firm has been unable to locate about 83,000 advisory contracts. Their absence made it impossible for Citigroup to correctly validate whether the fees that clients were billed are the same ones that they negotiated.

The SEC believes that affected clients paid Citigroup about $3.2M in excess fees.

The $18.3M that the bank must pay includes a $14.3M penalty, $3.2M in disgorgement related to the excess fees involving the missing contracts, and $800K in interest.

Massachusetts-Based Investment Advisor Accused of Bilking Clients of About $1.3M

Strategic Capital Management and its owner Michael J. Breton face both civil and criminal charges over an alleged illegal cherry-picking scheme that is believed to have bilked clients of about $1.3M. The SEC’s Market Abuse Unit found that Breton bilked at least 30 clients.

According to the regulator, the Massachusetts-based investment adviser allegedly used a master brokerage accounts to make trades and then designated the profitable trades for himself. He placed the trades that were not profitable into clients’ accounts.

The Massachusetts-based investment advisor has consented to a securities industry ban. The criminal case against Breton was brought by the U.S. Attorney’s Office for the District of Massachusetts.

10 Investment Advisory Firms Settle SEC Charges Alleging Pay-to-Play Rule Violations
10 financial firms will pay penalties ranging from $35K to $100K to the SEC to resolve charges that they violated the regulator’s pay-to-play rule. The investment advisory firms are accused of receiving compensation from public pension funds within two years after associates at the firms contributed to political campaigns.

The firms are not denying or admitting to the findings. They are, however, consenting to the order finding that they made the alleged violations.

Here is a list of the firms:

· Adams Capital Management

· The Banc Funds Company

· Aisling Capital

· Pershing Square Capital Management

· Atla Communications

· NGN Capital

· Lime Rock Management

· Commonwealth Venture Management Corporation

· FFL Partners

· Cypress Advisors

The SEC maintains that the firms who are settling violated the two-year timeout when they accepted fees from a state or city pension fund after their own associates contributed to the campaigns of either political candidates or officials who could potentially impact the pension funds.

Our securities fraud law firm works with investors who have sustained investment losses due to the carelessness, negligence, or wrongful acts of members of the securities industry. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

The SEC Order in the Citigroup Case (PDF)

The SEC Complaint in the Strategic Capital Management Case (PDF)

10 Firms Violated Pay-to-Play Rule By Accepting Pension Fund Fees Following Campaign Contributions, SEC, January 17, 2017