The lawsuit is being brought by the Australian Securities and Investments Commission (ASIC) against Citigroup for alleged insider trading and failures to manage conflicts of interest between the bank and its clients.
The case is the first big test for Australia's new insider trading laws, and the outcome is likely to affect the whole of the investment banking industry in Australia.
The charges relate to the trading in August of shares in Patrick Corporation, a cargo handling firm based in Australia.
Citigroup were advising another company, Toll Holdings, on their imminent takeover bid for Patrick Corp.
However, the day before the takeover was announced, ASIC says that there is strong evidence of trading by Citigroup in Patrick Corp. shares, illegally using confidential information in the process.
Citigroup has denied all the charges, stating that it sees no basis on which ASIC could bring a lawsuit.
The case is expected to bring up difficult questions about what does and doesn't constitute insider trading, issues that could prove important to other investment banking operations in the region.