Citi Pays $23.5 Million Tied to Overcharges on Smith Barney Fund Programs
Citigroup Global Markets agreed to pay $22.5 million to reimburse customers who were overcharged for managed accounts programs, New York State Attorney General Eric Schneiderman said on Thursday
The money will be paid to roughly 47,000 customers who invested in TRAK, a pioneering Salomon Smith Barney managed investment program, and other managed mutual fund accounts.
More than two-thirds of the customers were charged fees in TRAK of 1% to 1.5% of invested assets that exceeded the discounted fee that many had negotiated, Schneiderman said.
Citigroup also acceded to pay New York a penalty of $1 million. Investigators opened their probe in 2012 after receiving a client complaint in New York, according to the state’s investor protection bureau, which said customers “across the country” will benefit from the settlement.
Citigroup admitted to the charges and is pleased to have resolved the matter, a spokeswoman said.
The TRAK program continued after Morgan Stanley purchased Smith Barney over several years beginning in 2009. Morgan Stanley shuttered the program in 2014, and is not contributing to the settlement, according to a company spokeswoman.
Overcharges occurred in around 31,400 of 359,000 TRAK accounts that were reviewed. As a result of Citi’s own review of customer accounts after the state investigation began, it uncovered more than 15,000 customer accounts that had been frozen because of an owner’s death or because of pending investment strategy changes had been improperly charged, according to Schneiderman.
Citigroup began reimbursing customers in September 2014, more than two years after the Attorney General’s office began its investigation, and most of the $22.5 million has been distributed, the state said.
Citigroup also has updated its policies and procedures for account opening and billing, according to the settlement.