The US Securities and Exchange Commission (SEC) has charged Barclays Capital with failing to maintain an adequate internal compliance system after its US wealth management business acquired the advisory business of Lehman Brothers in September 2008.
An SEC examination and subsequent investigation found that Barclays failed to enhance its compliance infrastructure to integrate and support the acquisition and rapid growth of the advisory business from Lehman.
The deficiencies in its compliance systems contributed to other securities law violations by Barclays.
To settle the SEC’s case, Barclays agreed to pay a USD15 million penalty and to undertake remedial measures, including engaging an independent compliance consultant to conduct an internal review.
“When a firm acquires an advisory business, it must devote the attention and resources necessary to build a robust compliance system,” says Julie M Riewe, co-chief of the SEC enforcement division’s asset management unit. “Barclays failed to establish this critical compliance foundation when it acquired Lehman’s advisory business, and as a result subjected its clients to a host of improper practices and inadequate disclosures.”
According to the SEC’s order instituting a settled administrative proceeding, Barclays failed to adopt and implement written policies and procedures and maintain certain required books and records to prevent the other violations. For instance, Barclays executed more than 1,500 principal transactions with its advisory client accounts without making the required written disclosures or obtaining client consent. Barclays also earned revenues and charged commissions and fees that were inconsistent with its disclosures for 2,785 advisory client accounts. Barclays violated custody provisions of the Advisers Act, and underreported its assets under management by USD754 million when it amended its Form ADV on 31 March 2011.
The violations resulted in overcharges and client losses of approximately USD472,000 and additional revenue to Barclays of more than USD3.1 million. Barclays has since reimbursed or credited its affected clients approximately USD3.8 million including interest.
In addition to the USD15 million penalty, Barclays agreed to retain an independent compliance consultant to internally address the violations. Without admitting or denying the findings, Barclays agreed to be censured and must cease and desist from committing or causing any further such violations.
