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Citigroup sued for insider trading

Filed in archive Ethics by leon on March 31, 2006

Citigroup sued for insider trading
A sensational case in Australia with reports that the corporate cops at the Australian Securities and Investments Commission have filed a civil suit against Citigroup alleging insider trading and conflicts of interest.

You can read ASIClinks's allegations in its Statement of Claim filed today in the Federal Court.

The case revolves around the alleged conflict of interest Citigroup found itself in with the freight company Toll's $A5.5 billion ($US3.9 billion) takeover offer for stevedoring outfit Patrick. Citigroup is Toll's corporate adviser and was also trading in Patrick shares on its own behalf before the bid was announced.

As you'd expect, Citigroup has denied the claims. Its corporate and investment banking chief Stephen Roberts made valid points when he released the following statement:


"This lawsuit challenges an industry practice. Citigroup has well-established procedures, consistent with industry standards, for prohibiting communications between those involved in advisory services and those engaged in proprietary trading activities.
"Citigroup's proprietary desk was only one of several investment banks that traded on August 19, 2005 in a market where there was significant public speculation about a possible bid by Toll for Patrick Corp.
"ASIC's case is that once an investment bank accepts a corporate advisory mandate it must stop a wide range of trading activities. If an investment bank had to stop all of its other activities every time it took a corporate advisory mandate, market activity would stall. More importantly it could prematurely signal to other market players that a deal was afoot."


You'd have to say the regulator is ambitious. Insider trading? There is absolutely no evidence in the court document that the Citigroup trader was buying Patrick shares in the knowledge that a takeover was about to be announced. The more important, and certainly the most interesting, part of this case is the potential conflict of interest where Citigroup's actions and intentions were not necessarily in line with the interests of its client. That sort of potential conflict could give rise to insider trading, and that has implications for all investment houses.

On the other hand, what sort of mechanism do you have in place without letting the market know that a deal is imminent? It's a tough one.

You'd have to say that Citigroup's competitors would be watching this case very closely.






Permalink: Citigroup sued for insider trading
Tags: Citigroup  ASIC  citigroup 

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Related Entries:

Citigroup in court - 30 June 2006

Citigroup lawsuit - 03 November 2006

More on the Citigroup lawsuit - 08 February 2007

Citigroup cleared of insider trading - 28 June 2007





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