Watchdog Elusive On Citigroup Evidence

THE corporate watchdog has flagged that its case against the worlds largest bank is stronger than previously stated, because it is now alleging the bank had an "actual" conflict of interest with its client, Toll Holdings, rather than a "potential" conflict.

Australian Securities and Investments Commission counsel Nye Perram told the Federal Court yesterday that an amended statement of claim would include the refined and more specific allegations.

The new allegations arise from ASICs intensive review of hundreds of Toll and Citigroup documents handed over since the suit was launched in March.

It is the second time the legal goalposts in the landmark civil penalty suit have shifted, as part of strategic manoeuvring between the parties.

The earlier statements, which set out central facts and legal issues, were non-specific and wide-ranging.

ASIC argues that the bank engaged in insider trading and failed to manage conflicts of interest in advising on Toll Holdings $5 billion-plus takeover bid for Patrick Corporation in August last year.

Mr Perram declined to elaborate on the changes he would make to the case and was cryptic in his explanation to Justice Peter Jacobson.

"We have identified a particular thing that happened, which identified to a particular person where the conflict became not only potential but actual," he said. "We say it was a person who was afflicted by two pieces of knowledge."

He alluded to the fact that the further conflict arose when Toll announced its bid of $7.10 a share on August 22, and it referred to the $5.75 closing price for Patricks shares on August 18 rather than the $6.45 closing price on August 19 — the final trading day before the bid and the date on which the Citigroup proprietary trader bought more than 1 million Patrick shares.

The dispute challenges the effectiveness of the "Chinese wall" between Citigroups proprietary trading desk and its corporate advisory services. It questions the banks integrity, conduct and its procedures of managing conflicts of interest in its dealings with Toll.

ASIC also alleges that Citigroup did not tell Toll — and Toll did not know — that the bank had reserved its right to engage in proprietary trading in Patrick shares.

Precise details of ASICs allegations will be revealed prior to a further court hearing on December 20. Lawyers plan to use the pre-Christmas hearing to argue over whether 600 pages of transcripts of ASIC investigators interviews with senior Citigroup and Toll executives will be used as evidence in the case.

ASIC has asked the court that the bank pay a fine to the Commonwealth and compensation to Toll. It has been set down for a three-week hearing starting in March.

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