Australian Securities watchdog loses insider-trading case against Citigroup

SYDNEY – Australia's corporate watchdog was dealt a blow in late June, when it lost a landmark insider-trading case against Citigroup. The country's Federal Court found Citigroup – acting as an adviser in 2005 to Toll Holdings in its $4.4 billion bid for dockyard company Patrick – did not engage in insider trading, conflict of interest or a lapse in fiduciary duty.

The Australian Securities and Investments Commission now faces being ordered to pay Citigroup's legal costs. The trial was the first time the particular conflict-of-interest law had been tested in Australia.

ASIC's case surrounded Citigroup trader Andrew Manchee, who had bought more than a million Patrick shares the day before Toll was due to announce its takeover of Patrick. On a cigarette break with Citigroup head of equities Paul Darwell, he was told to stop buying Patrick shares. Manchee then proceeded to sell 200,000 Patrick shares late that afternoon.

Justice Peter Jacobsen said the claim failed because Manchee was not an 'officer' of Citigroup within the meaning of the Corporations Act. "His knowledge was therefore not attributable to Citigroup for the purposes of the insider-trading provision," Jacobsen said.

ASIC's other claims, that Citigroup had breached its fiduciary relationship with Toll by trading in shares of the company it was attempting to acquire, and an argument that it had engaged in a conflict of interest, were also dismissed.