The Securities and Exchange Commission charged Barclays Capital Inc. Tuesday with failing to maintain an adequate internal compliance system to make sure it didn’t violate any federal securities laws after its wealth management business in the U.S. acquired the advisory business of Lehman Brothers in September 2008.
To settle the SEC’s case, Barclays agreed to pay a $15 million penalty and take remedial action, including hiring an independent compliance consultant for an internal review.
Without admitting or denying the SEC’s findings, Barclays “agreed to be censured and must cease and desist from committing or causing any further such violations,” the SEC said.
“Investment advisers are required to adopt and implement written compliance policies and procedures reasonably designed to prevent violations of the Investment Advisers Act and its rules,” the SEC said. “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, the SEC said.
Julie M. Riewe, co-chief of the SEC enforcement division’s asset management unit, said when a firm acquires an advisory business, it has to give it “the attention and resources necessary to build a robust compliance system.”
After Barclays bought Lehman’s advisory business, it didn’t establish a “compliance foundation” and so exposed clients to “a host of improper practices and inadequate disclosure,” Riewe said.
The SEC settled the case with an administrative order and didn’t go to court.
The order said Barclays failed to adopt and implement written policies and procedures and maintain certain required books and records to prevent the other violations.
Among the violations:
Barclays executed more than 1,500 principal transactions with its advisory client accounts without making the required written disclosures or obtaining client consent.
It earned revenues and charged commissions and fees that were inconsistent with its disclosures for 2,785 advisory client accounts.
Barclays also violated custody provisions of the Advisers Act, and underreported its assets under management by $754 million when it amended its Form ADV on March 31, 2011.
The violations resulted in overcharges and client losses of approximately $472,000 and additional revenue to Barclays of more than $3.1 million.
Barclays has since reimbursed or credited its affected clients with $3.8 million including interest, the SEC said.
The SEC’s administrative order In the Matter of Barclay’s Capital released September 23, 2014 is here.
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.