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Rating:Judge Rejects Ex-Citi Execs' Bid To Junk Transfer Agent Case Not Rated 0.0 Email Routing List Email & Route  Print Print
Thursday, April 27, 2006

Judge Rejects Ex-Citi Execs' Bid To Junk Transfer Agent Case

by: Armie Margaret Lee

A federal judge on Tuesday refused to grant a motion by two former Citigroup Inc. executives to throw out fraud allegations in connection with Citigroup's creation of an affiliated transfer agent to serve its Smith Barney family of mutual funds, Dow Jones Newswires reported.

Last August, the Securities and Exchange Commission filed a civil complaint against Thomas W. Jones, former chief executive of Citigroup Asset Management and Lewis E. Daidone, former treasurer and chief financial officer of the Smith Barney fund family, accusing them of siphoning fund transfer agent fees to CAM instead of returning the savings to Smith Barney shareholders.

"Without addressing the question of whether Jones owed the funds a fiduciary duty, the court finds these claims, which still must be proven to the satisfaction of a jury, adequately allege Jones's knowledge of the underlying violation," Judge Richard C. Casey wrote in an order.

According to the SEC's complaint, Jones and Daidone were "principally responsible" for the transfer-agent scheme, which took place from 1999 to 2004.

The regulator alleged that CAM and Smith Barney Fund Management misrepresented and omitted material facts when recommending that the funds switch from a third party transfer agent to a transfer agent that was a Citigroup affiliate.

Instead of passing the substantial fee discount resulting from the use of the affiliated transfer agent on to fund shareholders, CAM took most of the benefit of the discount for itself, "reaping tens of millions of dollars in profit at the expense of mutual fund shareholders," the SEC said in its complaint.

Citigroup settled the SEC charges in May last year, agreeing to pay $208 million in disgorgement and penalties. It neither admitted nor denied wrongdoing. 

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