Since ASIC issued PS 181 there has been discussion about how it would be applied: ASIC’s action against Citigroup Global Markets Australia Pty Ltd (Citigroup) gives us the first example.
ASIC says that Citigroup breached the conflicts policy and the law in not disclosing to Toll that it was trading in Patrick’s shares on its own account whilst advising Toll.
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, Toll;
* 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.
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 is seeking, among other things, the following declarations and orders:
* declarations that Citigroup breached both the ‘conflicts of interest’ and ‘insider trading’ provisions of the Corporations Act (the Act);
* orders requiring Citigroup to comply with s 912A(1)(aa) of the Act by putting in place adequate procedures for dealing with conflicts of interest;
* injunctions restraining Citigroup from engaging in a breach of s 12CA of the ASIC Act by trading in securities on its own account while acting for clients to whom Citigroup owed duties in relation to the price of those securities;
* orders under s 12GLA of the ASIC Act, requiring Citigroup to undertake certain action, including community service or education; and
* orders that Citigroup pay a pecuniary penalty to the Commonwealth for a contravention of s 1043A(1) of the Act.
UPDATE: Read the statement of claim and trial submissions
UPDATE 28 June 2007: Decision: ASIC’s claims fail
