Fund Fee Lawsuit against Citigroup and Smith Barney Dismissed

On Wednesday, U.S. District Judge William Pauley dismissed all claims against Citigroup and the former Smith Barney Fund Management LLC, and those against Thomas Jones, the former chief executive of Citigroup Asset Management. Also, some claims against Lewis Daidone, a former Smith Barney senior vice president, were dismissed.

The ruling tosses out all of the claims made against Citigroup and Smith Barney in the long-running lawsuit alleging the companies and two executives of shortchanging mutual fund investors to the tune of more than $100 million in fee discounts.

The case stemmed from the creation of the Citicorp Trust Bank, which acted as an in-house transfer agent, and had the rights to charge lower fees than First Data Corp. Shareholders of the fund complained that in a “kickback scheme,” the Citicorp Trust Bank continued to charge higher fees raking in more than hundred million dollars in profit, which should have been passed on to the shareholders.

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In a related US Securities and Exchange Commission civil fraud case, the Citigroup has agreed to pay $208 million in fines and restitution. However, the judge said recent decisions of the Supreme Court undermined the principal argument by fund shareholders alleging that they had purchased shares relying on an assumption that Citigroup would honor its fiduciary duties.

Judge Pauley said, “This theory of reliance – if accepted – would amount to a novel presumption of reliance in the mutual fund context.”

However, the judge allowed some claims against Daidone to stand over misstatements in documents signed by him.

A Citigroup spokesman Liz Fogarty said “We are pleased that all claims against Citi where dismissed.”

The judge observed that delay had diluted the case of the plaintiffs. Last September, after citing epic failures on both sides, the judge had removed the lead plaintiff upon learning that it never owned shares that were involved in the case.

Posted by EmploymentCrossing on August 16, 2012. Filed under Business News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.