In a
late breaking story, ASIC has announced it is taking action against Citigroup,
one of the world’s biggest investment banks, over claims of illegal trading in
Patrick Corporation shares before Toll Holdings launched its first bid for
Patrick last August.

In a
statement issued today, ASIC said it had filed civil penalty
proceedings in the Federal Court against Citigroup Global Markets Australia Pty

Citigroup acted as an adviser to Toll Holdings Limited (Toll) in its $4.6 billion takeover bid
for Patrick Corporation Limited (Patrick) announced on Monday 22 August 2005.

ASIC’s investigation into Citigroup identified substantial proprietary trading (trading on its
own account) by Citigroup in Patrick securities on 19 August 2005, the last business day prior
to Toll making an announcement of the bid to the market. ASIC has alleged that Citigroup:

  • did not have in place adequate arrangements for the management
    of conflicts between its own interests and the interests of its client,
  • engaged in unconscionable conduct in relation to financial services;
  • engaged in proprietary trading on the basis of inside information; and
  • 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’s Deputy Chairman, Mr Jeremy Cooper said, “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. ASIC is saying that Citigroup fell
down on both fronts in relation to its role as adviser to Toll. ASIC
alleges that Citigroup traded on inside information and directly
against the interests of its client, Toll”.

Crikey believes that the proceedings involve a transaction of more than a million shares in Patrick traded on August 19.