The SEC charged Barclays Capital with failing to maintain an adequate internal compliance system to ensure the firm did not run afoul of any federal securities laws after its wealth management business in the U.S. acquired the advisory business of Lehman Brothers in September 2008.
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. 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 $15 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,” said 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 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 approximately $3.8 million including interest.
The SEC’s order finds that Barclays violated Sections 204(a), 206(2), 206(3), 206(4), and 207 of the Investment Advisers Act of 1940 and Advisers Act Rules 204-2, 206(4)-2 and 206(4)-7. In addition to the $15 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.
The SEC’s investigation was conducted by the SEC Enforcement Division’s Asset Management Unit and supervised by Valerie A. Szczepanik, and an examination of Barclays that led to the investigation was conducted by members of the New York Regional Office’s investment adviser and broker-dealer examination staff.