Discuss about the Australian Securities and Investments Commission Citigroup.
The essential issue which arouse in this case was whether the conditions of a communication of agreement, under which an investment bank have expelled the subsistence of any reasonable connection between the depository and its clients (Australasian Legal Information Institute, 2007).
It has been contended that, in spite of the subsistence of a section in the communication which has disqualified the continuation of such a association, the bank has violated assured reasonable duty towards its clients by fading to get the knowledgeable approval of the client to do a proprietary trade in the occupation of the target’s shares by other section of the bank. The plaintiff moreover has contended that the acquisition, and following transaction, of a section of the bundle of the shares which were being marked, contained insider trading (Australian Securities & Investments Commission, 2007).
Citigroup global Markets Australia Pty Ltd was an upper limb of the Citigroup Inc, a global monetary services corporation. Its trade was accomplished all the way through various sections, which included investment collection and deal of equities. In order to carry out its dealing, it holds an Australian financial services license (McCabe, 2007).
The workers of Citigroup who works in investment banking were exposed to the secret, and market prone information which is called the hidden side of a business. Additional members of the corporation works in areas such as dealing of equities, &were not uncovered to the confidential information, this side is known as the public side. According to the practice of the ordinary marketplace, the corporation has recognized “Chinese Walls” to control the sequential data. Part of the Public side of the corporation includes the internal house of contracts of the banks for trade and promotion of securities using the finances which were being owned by the bank. It is known as proprietary trading (Hanrahan, 2007).
On 19th August 2005, a trader in corporation’s proprietary trading section grounds the bank to buy over 1 million shares in Patrick Corporation Ltd. This heavy buy and sell drove Patrick’s share price up considerably (O’Brien, 2007).
Undiscovered to the dealer, corporation’s secretive area was recommending Toll Holdings Ltd in relation to a probable conquest effort of Patrick. The conditions of organization’s association with Toll were set out in a communication of authorization. However the organization has been assisting Toll since few months, and prominently has efficiently protected the permission to suggest on the takeover (Bright Law, 2016).
A private side member of staff exposed that the public side of Citigroup has acquired Patrick shares. The free side was forcefully told to discontinue buying them, but not the motive why. Similarly subsequent to the discussion, the free side dealer sold 20 % of the Patrick shares that had been acquired (Jacobson, 2007).
The fundamental nature of the inconsistent argument was that the defendant has violated some of the sections of the Australian Financial Services laws in that it has violated a reasonable responsibility payable by it towards the Toll in order to evade argument of concern and responsibility (Allens Linklaters, 2007).
The Plaintiff has specifically stated that the said alleged violation of the reasonable duty by the defendant means that:
The defendant did not ‘had the sufficient agreements for the organization of the difference of interest that would have arose totally, or in part, related to the actions undertaken by the defendant; or its legislative body in terms of the economic services as part of its trade for the economic services’.
The defendant was required to put in place the agreements because it was a holder of an Australian Financial Service license issued under Corporations Act 2001;
The work amounted to a misleading and deceptive behavior related to financial services, violating the Corporations Act, 2001 and amounted to the Unconscionable Conduct violating the ASIC Act.
The applicable provisions related to the financial services laws are the laws under which the plaintiff has been in position in order to carry a Civil Proceedings in the Court for non-conformity. It wanted variety of guidelines from the Court which were being related to the alleged violations, including the declarations that the action of the Defendant was done in violation of law, and injunctions were issued requiring the defendant to take certain measures to fix those violations (Devonshire, 2016).
It is significant to note that, in order to formulate & plead a case against the defendant, the plaintiff has chosen to argue only that the defendant has violated these statutory bye-laws by being in the situation of infringement of a reasonable obligation owed to by the defendant to Toll. The plaintiff did not make an argument that the defendant has violated the constitutional bye-law in other way.
In order to establish that the defendant’s act of proprietary trading in shares has breached the reasonable duty which it owed to Toll, the plaintiff side has established three major things:
The association among the defendant and the Toll was reasonable in character and in accordance with that it was essential to evade any kind of conflict among its private welfare and its responsibility towards Toll;
The employment which was commenced by the defendant has produced a clash of benefit and obligation;
The Defendant did not have the informed consent of the Toll for the survival of the clash.
In order to ascertain the second of these things, the plaintiff has to go one step forward and ascertain that, because it was a reasonable affiliation of the defendant to be paid to the Toll. It was the sense of duty of Citigroup to make all such type of disclosures in relation to the matters which were pertinent to its authorization especially when it was alert about such matters. The plaintiff would like to bring into notice of the court that such a duty was derived by the High Court in the case of Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371 at 385.
In the present case, the issue has been established out of the acquisition made by the public worker of over 1 million shares in the Patrick Corporation at the instance when the secretive staff was performing for defendant’s clients, Toll, on a projected offer of takeover. The share was bought up by the trader who was working on the desk of trading located in Equity Derivatives, within the equities Division (Barnett,2012).
The plaintiff side wants to bring into notice of the court that it does not suggest that the dealer was in ownership of any inside information when he acquired the shares. Though, when the purchases made by the trader became known to the confidential workforce, actions were in use to teach him to impede importing further shares.
The plaintiff relies on the actions which were being taken within the defendant company previously when the trader’s procurement became known to the personal employees as signifying the inadequacies of the Chinese walls to stop the stream of the undisclosed facts from the secretive workforce to the free side.
The plaintiff also asserts that the deal made by the trader of the Patrick shares after a chat with the higher authority, comprised insider trading by the defendant in violation of s 1043A of the Corporations Act.
It has also asserted that the defendant, being a consultant to Toll on its projected invasion of the shares, has engaged a connection which was, in grave greetings, reasonable. As a reasonable duty, the defendant was grateful not to permit itself to be positioned in a situation of the real or possible variance arising among its responsibility of devotion to Toll and its attention in the proceeds required to be achieved from its dealing in the Shares (Lynch, 2016).
It has been submitted that the elementary point made in the proceeding was that if the employment done by an organization such as the defendant in the shares of its client’s aim corporation was to be assumed, the establishment needed to get the conversant permission as specified above. It was not adequate, for consent to be given indirectly as the express permission should be obtained.
The main focus of the plaintiff’s case was that for the segregation of the reasonable relationship in the dispatch of mandate to be efficient, it was serving upon the defendant to illustrate the concentration of the Toll specifically to the effect of elimination. It means that the Toll has allowed the defendant to do business in Patrick shares on its own relation, in probable clash with the welfare of Toll.
The Plaintiff also would like to bring into notice the points to the measures pre-dating the implementation of the communication of consent as the part of the case. Though, in the case of United Dominions Corporation Limited v Brian Pty Limited (1985) 157 CLR 1 at 11-12 it was clearly stated that a difficulty has arisen because of its renunciation of a fiduciary relationship pre- dating the genuine implementation of the correspondence of permission.
It was also argued by the plaintiff that there were three claims of conflicts such as there was a violation of s 1041H of the Corporations Act; breach of s 12DA of the ASIC Act 2001; and violation of s 12CA of the ASIC Act 2001. Though, all of the three claims depends upon the approval of the arguments made by the plaintiff that the defendant owed a reasonable duty to Toll.
At last, the plaintiff made specifically four major claims against Citigroup which were as follows:
Infringement of Fiduciary Relationship
Citigroup has not stated adequate arrangements in place for managing conflicts
Misleading and deceptive behavior was done
Insider trading
Conclusion:
The Court discarded all of defendant’s claims which were being made by it in regard to the infringement of fiduciary relationship of Toll and Citigroup; insider trading; misleading and deceptive behavior; and agreement for organization of disagreement (Ritchie, 2008).
It was accomplished that the defendant was not an untrained confirmation of present practices. After conducting a proper analysis, it was stated that it was a caution of the dangers which were inbuilt in investment bank’s present practices. The defendant has escaped the sanctions for two major reasons such as:
The plaintiff approved that no fiduciary relationship existed between Toll and the defendant prior to the communication of authorization. That appeared to be a weird allowance, given the court originated that pre-contractual dealing among Toll and the defendant which included all of the elements of a fiduciary relationship of counselor & the consumer (Will,2012).
If the plaintiff has productively argued that a fiduciary relationship existed prior to the mandate letter, then the defendant would still succeeded because Toll gave implied permission to the defendant violating its responsibility, given Toll’s understanding in takeovers and investment bank practices. The Court purposely discarded a compliance that fully stated that permission could be implied in all cases where an investment bank advising on a takeover trades in its clients target’s shares ( Seeto, 2008).
The proposals of law relied upon by the plaintiff was to force an obligation on the defendant to get hold of the articulated consent of Toll to do proprietary dealing were not occupied. The law does not avert a bank from constricting out of, or modifying any reasonable duty. The Plaintiff’s analysis of the suitable structure of s 912A (1) (aa) of the Corporations Act is consistent with this.
The insider claim which was been alleged against the trader has failed because the trader was not an executive of the defendant corporation and he did not build the belief which was being made by the plaintiff.
Another reason for the failure of insider trading aver was that the Chinese walls resistance which was enclosed in s 1043F of the Corporations Act was occupied. On the other hand, the actions which took place within the defendant’s corporation, shown that the Chinese walls was not as hard as the name implied.
Therefore, it was ordered by the court that the application which was made should be dismissed. As the Judge have seen no reason as to why the costs should not follow the event but he would have heard the arguments if both the defendant and the plaintiff desires to challenge for a dissimilar order of the cost.
References:
Allens Linklaters (2007) The Federal Court has rejected ASIC’s charges of conflict of interest and insider trading against Citigroup. Partner Michael Schoenberg (view CV), Lawyer Alex Danne and Articled Clerk Simon Sherwood report. [Online] Allens Linklaters Available from: https://www.allens.com.au/pubs/ldr/cucljun07.htm [Accessed on 12/09/16]
Australasian Legal Information Institute. (2007) Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Limited (ACN 113 114832) (No. 4) [2007] FCA 963 (28 June 2007) [Online] Australasian Legal Information Institute Available from: https://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/2007/963.html [Accessed on 12/09/16]
Australian Securities & Investments Commission (2007) Decision in ASIC v Citigroup [Online] Australian Securities & Investments Commission Available from: https://asic.gov.au/about-asic/media-centre/find-a-media-release/2007-releases/07-171-decision-in-asic-v-citigroup/ [Accessed on 12/09/16]
Barnett, K. (2012) Accounting for Profit for Breach of Contract: Theory and Practice [Online] Bloomsbury Publishing
Bright Law. (2016) ASIC v Citigroup decision: no conflict and no insider trading [Online] Bright Law Available from: https://www.brightlaw.com.au/financial-services/asic-v-citigroup-decision-no-conflict-and-no-insider-trading/ [Accessed on 12/09/16]
Devonshire, P. (2016) Account of Profits for Breach of Fiduciary Duty [Online] Sydney Law Review Available from: https://sydney.edu.au/law/slr/slr_32/slr32_3/Devonshire.pdf [Accessed on 12/09/16]
Hanrahan, P.F. (2007) ASIC v Citigroup: Investment banks, conflicts of interest, and Chinese walls [Online] The University of Melbourne Available from: https://law.unimelb.edu.au/__data/assets/pdf_file/0008/1709837/67-Hanrahan_ _ASIC_v_Citigroup1.pdf [Accessed on 12/09/16]
Jacobson, J. (2007) FEDERAL COURT OF AUSTRALIA Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Limited (ACN 113 114 832) (No. 4) [2007] FCA 963. [Online] The Sydney Morning Herald Available from: https://www.smh.com.au/pdf/ASICvCitigroup.pdf [Accessed on 12/09/16]
Lynch, A. (2016) Great Australian Dissents [Online] Cambridge University Press
McCabe, B. (2007) McCabe, Bernard — “ASIC v Citigroup and fiduciary obligations” [2007] BondCGeJl 5; (2007) Corporate Governance eJournal (Bond) [Online] Australasian Legal Information Institute Available from: https://www.austlii.edu.au/au/journals/ElderLRev/2007/5.html [Accessed on 12/09/16]
O’Brien, J. (2007) Private Equity, Corporate Governance and the Dynamics of Capital Market Regulation [Online] World Scientific. Pp-122-123.
Ritchie, T. (2008) ASIC v Citigroup: An Amber Light For Proprietary Trading
[Online] Australasian Legal Information Institute Available from: https://www.austlii.edu.au/au/journals/ElderLRev/2008/2.pdf [Accessed on 12/09/16]
Seeto, G. (2008) ASIC v Citigroup – The compliance implications [Online] Clayton UTZ Available from: https://www.claytonutz.com/knowledge/2008/january/asic-v-citigroup-the-compliance-implications [Accessed on 12/09/16]
Will, S. (2012) How They Got Away with it: White Collar Criminals and the Financial Meltdown [Online] Columbia University Press
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