Reuters: Regulatory News: Citigroup, Smith Barney win end to fund fee lawsuit

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Citigroup, Smith Barney win end to fund fee lawsuit Aug 15th 2012, 21:14 Wed Aug 15, 2012 5:14pm EDT * Shareholders said fee discounts never passed on to them * Judge rejects "novel" theory of reliance * Citigroup had settled SEC case for $208 million By Jonathan Stempel Aug 15 (Reuters) - A Manhattan federal judge dismissed nearly all of a long-running lawsuit accusing Citigroup Inc , its former Smith Barney brokerage unit and two executives of shortchanging mutual fund investors out of more than $100 million of fee discounts. U.S. District Judge William Pauley on Wednesday threw out all claims against Citigroup and the former Smith Barney Fund Management LLC, and Thomas Jones, formerly chief executive of Citigroup Asset Management. He also dismissed some claims against Lewis Daidone, a former Smith Barney senior vice president. The case arose from Citigroup's creation of an in-house transfer agent, Citicorp Trust Bank, that could charge lower fees than First Data Corp, whose contract was expiring. Fund shareholders complained that the new transfer agent continued to charge higher fees, in a "kickback scheme" that enabled the bank to take in more than $100 million of profit that should have been passed on to them. Citigroup agreed to pay $208 million in fines and restitution to settle a related U.S. Securities and Exchange Commission civil fraud case. But Pauley said recent U.S. Supreme Court decisions undermined the argument by fund shareholders that they had bought their shares in reliance on an assumption that Citigroup would honor its fiduciary duties. "This theory of reliance - if accepted - would amount to a novel presumption of reliance in the mutual fund context," Pauley said. The judge let stand some claims against Daidone with respect to misstatements in documents that he signed. Morgan Stanley now owns a majority of Smith Barney, under a joint venture with Citigroup, but the lawsuit predated that venture. "We are pleased that all claims against Citi were dismissed," Citigroup spokesman Liz Fogarty said. Lawyers for Jones and Daidone did not immediately respond to requests for comment. An SEC case against the former executives was dismissed in 2007 The litigation before Pauley was delayed last September after the judge, citing "epic failures" on both sides, removed the lead plaintiff at the time upon learning that it never owned shares that were part of the case. That delay and the passage of time hurt the plaintiffs' case, Pauley said. "In the Eclogues, Virgil observed that 'time bears away all things, even our minds,'" he wrote. "Virgil's maxim applies to legal theories as well." The case is In re: Smith Barney Transfer Agent Litigation, U.S. District Court, Southern District of New York, No. 5-07583. Link this Share this Digg this Email Reprints

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