Citigroup sued for insider trading

SYDNEY - Citigroup is being sued by Australia's securities regulator for using inside information to trade shares while advising Toll Holdings on a hostile A$4.6 billion takeover bid for Patrick Corp.

The Australian Securities and Investments Commission filed civil proceedings in the Federal Court against Citigroup Global Markets Australia yesterday. Citigroup denied the allegations.

Citigroup advised Melbourne-based Toll in its offer for Sydney-based Patrick, which was made on August 22. ASIC said the biggest US bank traded Patrick securities on August 19, the last business day before the bid was announced.

Citigroup chief executive officer Charles Prince has been working to overcome past scandals, including allegations the company's private bank in Japan failed to safeguard against money laundering. He settled lawsuits stemming from Enron and WorldCom, closed the Japanese private bank and unveiled a plan to lift compliance standards.

"ASIC alleges that Citigroup traded on inside information and directly against the interests of its client, Toll," deputy chairman Jeremy Cooper said.

Patrick shares rose 15 per cent on August 19, amid speculation Toll was set to bid. More than 20 million Toll shares traded that day, compared with an average 3.2 million the previous six months.

Citigroup spokeswoman Judy Hitchen said: "Citigroup does not believe ASIC has any basis of a claim. This is an attempt to regulate the proprietary trading desks which are a feature of all major investment banks."

She said the New York-based Citigroup denied all charges. The case will be heard on April 28.

"This is a significant case raising two important issues for the securities industry: Having adequate arrangements for managing inside information, and dealing with conflicts of interest," Cooper said.

ASIC spokeswoman Anne Lampe said Citigroup might be fined as much as A$1 million. Non-financial penalties include community service orders and up to three years' probation.

Citigroup "did not have in operation arrangements that could reasonably be expected to ensure that inside information was not communicated to the Citigroup employee who traded in Patrick shares for the benefit of Citigroup", ASIC said.

The Sydney Morning Herald reported on August 18 that Toll may be considering a takeover bid for Patrick. A bid appeared imminent after heavy trading of Patrick stock on August 19, the newspaper reported the following day, adding that JPMorgan Chase & Co was the biggest net buyer with 3.7 million shares, followed by Goldman Sachs, JBWere, Deutsche Bank, Citigroup and Macquarie Bank.

Earlier this week Patrick, Australia's biggest port cargo handler, rejected Toll's increased A$5.4 billion bid as chief executive officer Chris Corrigan seeks to build his own land transport business. He said Toll's cash and stock offer was "flawed and unacceptable".

- BLOOMBERG