Citigroup insider dealing trial begins

26 March 2007

Citigroup will today answer charges from the Australian Securities and Investment Commission (ASIC) over allegations of insider trading and failure to manage a significant conflict of interest.

The accusations in the Federal Court in Sydney hinge around the claim that one department of the bank traded shares in logistics company Patrick, while another Citigroup company were overseeing and providing advisory assistance to Toll Holdings who were planning a buyout bid for Patrick.

The incident that sparked the enquiry is said to have occurred when trader Andrew Manchee and Paul Darwell, head of equity derivatives, met at a cigarette break, during which it is alleged that Mr Darwell instructed Mr Manchee to stop buying shares in Patrick.

It is thought that ASIC will seek a $1 million fine for Citigroup, which denies that the bank had knowingly been trading shares and advising Toll concurrently.

Justin O' Brien, professor of corporate governance at the Australian National Universtiy, told Bloomberg: "If the regulator wins, it creates enormous problems for an integrated investment bank engaging in proprietary trading in stocks held by a company for whom it's also providing corporate advisory services.

"Potentially, this case has enormous implications. At what stage an investment bank owes a fiduciary duty to clients has never been tested. That's why this is a landmark case," he added.

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