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Citi settles investigation into customer fee overcharges topping $22.5M

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As part of an agreement with the New York Attorney General's Office, Citigroup Global Markets today agreed to pay a $1 million penalty to the State of New York to settle charges that it overcharged over 47,000 customers more than $22.5 million in fees.

In addition, it will reimburse customers for the fees it overcharged them, plus interest, and will report fee overcharge errors that it discovers in its U.S.-based advisory business to the Investor Protection Bureau of the New York Attorney General's office on a quarterly basis for the next three years.

The settlement concludes a four-year investigation that started when a customer filed a complaint with the Attorney General in 2012.

The investigation found that Citigroup Global Markets overcharged some of its customers more than the fees they had negotiated on their managed investment accounts. It also overcharged customers by failing to rebate certain customers' accounts after periods of inactivity when fees should not have been charged, according to the Attorney General.
"Our investigation put $22.5 million rightfully back in the hands of customers in New York and across the country," Attorney General Eric Schneiderman said in a statement. "We appreciate Citi's cooperation with our investigation and its commitment to ensuring investors are paid back what they are owed."

Danielle Romero-Apsilos, a spokeswoman for Citi International, said the firm was pleased to have the matter resolved and put to rest.

As part of the investigation, Citigroup Global Markets initially identified more than 31,000 customers who were charged higher advisory fees than they negotiated on so-called "TRAK" accounts, which typically charge advisory fees ranging from 1% to 1.5%. Even though the customers had negotiated a lower fee than the standard rate, many were being charged higher-than-negotiated rates without their knowledge. The Attorney General found that the firm overcharged the customers close to $17 million in principal and interest, which it has now substantially repaid to affected customers.

Even though Citigroup Global Markets started reimbursing customers in October 2014, the investigation widened to ensure that other account holders who were overcharged fees would also be reimbursed. As part of that wider investigation, Citigroup discovered that it also overcharged another 948 non-TRAK accounts for similar issues and repaid affected customers more than $1 million in principal and interest, according to the Attorney General.

It also identified more than 15,000 additional Citi customer accounts that were overcharged fees during frozen periods when accounts were inactive. Thousands of customers were not allocated rebates they should have received either because they did not request a rebate or because Citigroup did not have policies and procedures in place to determine when rebates were appropriate, the Attorney General claimed.

Citigroup will repay customers for the frozen account fee overcharges a total of more than $4.6 million in principal and interest.

Since the launch of the investigation, Citigroup Global Markets has revised its policies and procedures to address the fee overcharge issues. It also admitted the findings of the investigation, the Attorney General noted.

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