Aussie rules

31 March 2006 By Chris Hughes

The US financial group has spent the past two years trying to convince regulators that it’s scandal free and fit to return to the bid trail. Now an insider trading court case in Australia could put it firmly back in the doghouse.

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Citigroup stands accused of insider dealing and weak internal controls, following a civil legal action by the Australian Securities and Investments Commission.

ASIC alleges that the US bank's proprietary trading desk traded on inside information, and that the firm had inadequate controls to police conflicts of interest. Citi took a proprietary position in Patrick Corporation in August, the day before the transport group received an expected A$4.6bn takeover bid from Toll Holdings. The bank was also acting as financial adviser to Toll.

"This is a significant case raising two very important issues for the securities industry: having adequate arrangements for managing inside information and dealing with conflicts of interest," the ASIC said in a statement. Citigroup disagreed with the ASIC's allegations.

"Citigroup has wellestablished procedures, consistent with industry standards, for prohibiting communications between those involved in advisory services and those engaged in proprietary trading activities," it said. "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."

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