Attorney General Eric T. Schneiderman today announced an agreement with Citigroup Global Markets, Inc. (CGMI), a subsidiary of Citigroup, to reimburse more than 31,000 Citi customers who were charged higher advisory fees than they negotiated. The agreement returns nearly $16 million to about 31,000 Citigroup customers. While some customers have already started to receive their refunds, thousands more are likely unaware that they are eligible to get money back.
“Often, it takes just one tip to uncover an error that affects tens of thousands of individuals. In this case, a bank customer complained to my office about her account. We investigated that complaint and found a widespread problem, one that cost bank customers, in New York and across the country, millions of dollars,” Attorney General Schneiderman said. “I want to thank Citigroup for its cooperation, and for ensuring that the agreements made with its customers will be honored – to the tune of $16 million.”
Customers with so-called “TRAK” accounts typically pay a fee for advisory services ranging from 1% to 1.5%. However, the fees were negotiable, and many customers were able to obtain a lower fee than the standard rate. An inquiry into that process, though, has determined that many customers were being charged higher-than-negotiated rates and unaware that they were paying more than they should.
To determine whether more customers were overcharged, the Attorney General’s investigation is continuing. Also, as part of CGMI’s continuing cooperation with the New York Attorney General’s Office, it is conducting a wider review of other types of accounts to ensure that any account holders who have been overcharged will also be paid restitution. The NYAG will continue to oversee CGMI’s review and remediation efforts.
The Attorney General’s office launched an inquiry based on a complaint from a Westchester resident who had been overcharged, seeking to determine whether other TRAK account holders were similarly affected.
Working collaboratively with Citigroup, the Attorney General’s Investor Protection Bureau has determined that at least 31,000 account holders have been overcharged. CGMI has agreed to ensure that restitution – totaling nearly $16 million in principal and interest – is paid to current and former TRAK account holders. Of those, nearly 3,000 New Yorkers were overcharged and will get back more than $1.3 million.
The investment advisory services provided through the TRAK program start when a customer opens an account, and his or her objectives help direct particular investments. The advisory services then continue during the life of the account, and include periodic monitoring reports and recommendations regarding changes in a customer’s investments.
The standard fees for these services were negotiable, so customers were sometimes able to get CGMI to agree to a lower percentage fee than the standard rate.
In 2012, a customer complaint to the Attorney General’s Westchester office revealed that while the customer had negotiated a 1.2% initial fee for her account, she was nonetheless charged the standard 1.5% over a period of three years, causing her to be overcharged by more than $3,000 in fees. The office then launched an inquiry to determine whether other TRAK account holders who negotiated a lower fee were similarly overcharged.
CGMI has cooperated with the Attorney General’s inquiry, and has already identified tens of thousands of TRAK accounts that were overcharged fees. As a result, restitution totaling $15,969,824.47 will go to 31,324 current and former TRAK account holders. That total includes 2,931 New York account holders who will receive a total of $1,305,197.08.
The investigation into Citgroup Global Markets, Inc., is led by Gary Brown, Assistant Attorney General-in-Charge of the Westchester Regional Office, Chad Johnson, Chief of the Investor Protection Bureau, and Katherine Milgram, Deputy Chief of the Investor Protection Bureau. Karla G. Sanchez is the Executive Deputy Attorney General for Economic Justice.