13 June 2017

Settlements in brief: Barclays pays for overcharging and Brazil sees new corruption case

Enforcement actions by criminal and supervisory authorities are settled regularly. In light of these developments, companies are advised to take appropriate measures. This month we highlight the Barclays settlement of approximately USD 97 million with the Securities and Exchange Commission in the US. Barclays allegedly overcharged clients resulting in three sets of violations. The second settlement concerns the case of J&F in Brazil, which allegedly bribed politicians. This settlement is one of a number of large settlements in Brazil related to bribery.

Barclays settles with SEC for overcharging clients
Barclays settled with the SEC for a total amount of more than USD 97 million on 10 May 2017. The settlement consists of USD 49.8 million in disgorgement, USD 13.8 million in interest and a USD 30 million civil penalty. Another USD 3.5 million will be directly refunded by Barclays to advisory clients who invested in underperforming investment managers and strategies, and to brokerage clients who were recommended more expensive share classes when less expensive share classes were available.

According to the SEC, the settlement consists of three sets of alleged violations, resulting in overcharging clients by almost USD 50 million:

  • The first violation took place between September 2010 and December 2014, when Barclays charged more than 2,000 clients for due diligence and monitoring services while Barclays was not performing these services as represented.
  • The second violation took place from January 2010 to December 2015, when Barclays Capital disadvantaged brokerage customers (Eligible Customers). Barclays Capital recommended that they purchase more expensive mutual fund share classes, even though less expensive share classes were available. The purchase of these more expensive share classes would lower the overall return on the investments of the Eligible Customers. Undisclosed, according to the SEC, was Barclays’s conflict of interest in receiving more compensation when selling more expensive share classes.
  • The third violation took place from January 2011 to March 2015, when more than 22,000 accounts were allegedly charged excess fees due to miscalculations and billing errors by Barclays.

These practices led to violations of provisions of the Investment Advisers Act and the Securities Act. Part of the settlement is the direct refunding of USD 3.5 million to advisory and brokerage clients. Alongside this, Barclays needs to create a fund to manage the distribution of fees to affected clients.

USD 3.2 billion Brazil settlement payment spread over 25 years

J&F Investimentos announced on 31 May 2017 that it had reached a settlement with the Brazilian Federal Prosecutor’s Office. It agreed to pay USD 3.2 billion to settle the alleged bribing of 1,900 local politicians. J&F Investimentos is the parent company of Brazil meatpacking company JBS SA, the largest meatpacker in the world. In recent years, J&F allegedly bribed politicians and received investments and loans from pension funds and state-run banks in return. The settlement follows information provided by J&F’s owners during testimony.

This settlement reveals yet another corruption matter in Brazil’s already tumultuous political scene, which is occupied with the new Brazilian president’s alleged links to acts of corruption. Former presidents are also mentioned in the J&F case, for allegedly receiving USD 80 million worth of bribes. Brazil prosecutors claim that the recent Odebrecht settlement (see In Context February 2017) and this J&F settlement are the largest bribery settlements in the world.

The payments will start in December 2017, and J&F will be given 25 years to complete the settlement payments. An interesting detail: after three proposals from J&F were rejected by the Brazilian prosecutors, the company replaced its lawyers. J&F was ultimately able to dramatically reduce the settlement amount.