A Detailed Analysis On The Case Of Asic V Citigroup

Question

Task: Provide a brief account on the case of ASIC v Citigroup and an analysis of the decision made by the court.

Answer

Introduction: In this report a detailed analysis of the ASIC v Citigroup case held in the year 2007 is being conducted. This case consisted of fiduciary duty or legal guardian responsibilities. On of the party in the case, Citigroup is one of the multinational companies which provides service in the field of finance and banking. In this report, a detailed and thorough analysis of the dispute between the ASIC and Citigroup company is being done. In the later section of the report, various breach of duties is being recognized and studied and a short investigation is being conducted to know the reason of the violation occurred. At the conclusive part of the conclusion a very thorough evaluation of the decisions and findings made in the court relevant to the ASIC V Citigroup case.

Case Background: The ASIC V Citigroup case throws light on the function and significance of the relationship clause in devising a contractual obligation and thus providing an outline of the guidelines and rules to be followed by the entering parties. The whole case revolves around the Citigroup. The City Group had developed and operated its business by the means of its various divisions and components such as equity capital market, investment banking, equity trading, etc. In the City Group company, the employees working in the departments of Equity Capital Market and Investment Banking Division were supplied with statistics that formed the part of sensitive data and information in the market through the employees in the equity were devoid of this data (Ferguson and Ma, 2014). In the company, there was no transparency or effective communication between the departments which worked as a wall among them. In the due course of time the employees working in the equity department of the company purchased the stocks and bonds of Patrick Corporation Limited which was listed under the Australian Security Exchange. It was when the Investment Banking Division and the Equality Capital Market department under the City Group was conducting the activity of Toll when the purchase had taken place.

Because of this reason the ASIC had charged a proceed against the Citigroup company. Not only for this reason, but the Board of ASIC also charged issues like breach of the given responsibility and the fiduciary duty by City group (Ferguson and Ma, 2014). The role of the City group was only as an advisor and by buying the stocks and shares of Patrick company the group has entered into a dispute with Toll. This course of events had made a gap in the fiduciary relationship between Citigroup and the Toll. The basic ideology of the Citigroup to advise the Toll company in financial matters was contradicted itself and hence making a breach in the loyalty. The management and the employees of the City Group company had overstepped the guidelines laid in the legal and statutory prerequisites which control the companies which provide service in the financial sector (Ferguson and Ma, 2014). Even after the City group has conducted this discrepancy, the Toll company allowed the group to continue as their fiscal counselor to keep the fiduciary relationship intact. The City Group was allowed to continue as a sole counselor for the Toll Company in fiscal matters. The government bodies like Australian Security and Investment Commission (ASIC) has put forward the advice to consider the relationship between Citigroup and Toll to solve and eradicate the consequences of the clause mentioned in the agreement to maintain the sustainability of the fiduciary relationships.

Breach of Duty: The term Breach of Duty signifies the statutory and legal circumstance when one of the parties indulges in an activity leading to the failure of the agreement and hence missing the mark to deliver the work mentioned in it. The parties engaged in the contract should comply with the ethical and moral obligations to maintain the sanctity of the document. The responsibility laid on the parties or the individuals who have entered into an agreement should behave and perform keeping in mind the wellbeing and welfare of the remaining parties which could also be concisely termed as duty of care (Braid, 2013). The two main issues noticed, in this case, are internal trading and the failure in performing fiduciary duty. The employees and the management of the City Group were blamed to be conducting a breach of both the duty of loyalty and duty of care. The liability of the higher authorities in an organization to abstain themselves from the activities or the transactions which may contradict or conflict the interest of other parties is termed to be the duty of loyalty. The duty of loyalty is termed to be breached when an organization indulges itself in actions that exploit comparatively weaker parties (Carson, 2015). Thus, the Citigroup should not have conducted any behavior or transactions which have even a remote possibility of hurting the mission or the business of Toll. The augmented level set for the fiduciary duty is generally termed as the duty of care. The relation in which one of the parties relies on others for the legal guardianship is called fiduciary relationship (Jade, 2017).

The ASIC i.e. the Australian Security and Investment Commission had not taken any action against the Equity department for retaining sensitive data of interior processes and manipulating it to buy the stocks of other organizations. It was observed that the authority of city Group had breached the law for fiduciary responsibilities envisaged under section 912A (1), Corporation Act, 2001 (ASIC, 2016). This section laid down by the ASIC elucidates that the managers of the company should focus that there should be no action on behalf of the company which may cause any repulsive or harmful effect on their partners or other groups. In this case of ASIC V City Group, it was found that the City Group had conducted the infringement of the stipulations laid down under section 1043 H of Corporation Act, 2001 and section 12 DA under ASIC Act. Besides from this provision, the Citigroup has also infringed the guidelines which are on the internal trading as envisaged in the section of1043A of Corporation Act, 2001 (Seeto, 2017). In further investigation after the infringement, the board of ASIC had found out that the staff of the equity department had failed to keep the secret data safe and the leak of the data resulted in internal trading. Since the act was conducted by the employees of the City Group, it could only be considered as the act of personal interest. Hence the City Group was held suspect by the AISC in the AISC V Citigroup case for engaging itself in the act of internal trading, breach of duty, and breach of contract.

The company City Group was divided into three sections, which were equity trading, equity capital market, and investment banking. Although the company had created a strong wall of isolation between the departments there was a leak in the sensual data which eventually led to the breach of duty of care and the duty of loyalty. The Equity trading company was not supposed to handle the sensitive data but however, the employees of the department managed to get the possession of stocks and bonds of Patrick company of which the Investment banking department remained unaware of (Ferguson and Ma, 2014). Although the Equity trading department had conducted this task, it was the responsibility of the Investment Banking department to conserve and safeguard the financial curiosity of the Toll. It was very evident from the above scenario that the intentions and path of the Equity trading department were totally in contradiction with the interests of the Toll Company. These all happenings had resulted in a breach in the duty of care. As the investment banking department had failed to conserve the interests of the Toll company, the instance would be classified as an act of breach in loyalty.

An Overview and the Analysis of the Court Decision and rationale behind it: The arguments and the claims made by the Australian Securities and Investment Commission were denied and overruled by the federal court in the case of ASIC V Citigroup. As per the observations and the jurisdiction of the court, the Citigroup had not broken any liability or responsibility and hence all the provisions of the corporation act were followed. It was also being observed by the federal court that the company could not be sued for internal trading as the company had not conducted any breach in the stipulations provided in the insider trading provision of corporation act. The ASIC had earlier claimed for $1 million as compensation or fine for the breach of inside training provisions. On the contrary, the federal judiciary chaired by Peter Jacobson held the ASIC to repay the legal charges and expenditures that occurred to the city group because of the ASIC V Citigroup case (Jacobson, 2007). No evidence for breach in the corporation act or the insider trade was found in this case. ASIC as an opposition-held the City Group for the laziness in the initiative to manage the conflict, breach in the fiduciary relationship, conducting the act of manipulation and fraudulence, a breach in the guidelines of insider trading provisions. Even though these accusations were made by ASIC on the City Group, they all were discarded by the judicial bench of the federal court.

It was also made clear by the court that the business activities of the City Lights in the ASIC V Citigroup were not at all breaching the corporation act. The court had rejected the argument because the City Group company was no actually in a fiduciary relationship with the Toll since Citigroup behaves and operates merely as an independent and solitary contractor which eliminates activity as a fiduciary. So as per the agreement in which City Group and Toll have entered, there is not even the slightest possibility of a fiduciary relationship between the parties (Ritchie, 2008). The second argument put forward by the ASIC, that there were no preparations or prearrangements for the better handling of the situation since the judicial bench had already made it clear that there re no fiduciary relationship among the parties and strict segregation between the departments were already present in the company. The departments in the company of City Group were separated by Chinese wall type arrangements to maintain difference and self-reliance in their business processes which are supervised by major compliance officer in each relevant and respective section.

As per the discussion provided above and the decisions made by the court, it is evident that there was no any fiduciary relationship among the Citigroup and the toll company which also eliminates the accusation of fraudulent and misleading conduct by the company. It was also rejected by the judicial bench that the company had indulged itself in the act of insider trading which was accused by the Australian Securities and Investment Commission. The board of ASIC had accused that the company had already indulged in the process of insider trading at the time of purchase of Patrick company bonds which were brought from public sellers (Ritchie, 2008). As per the arguments of the ASIC, the traders were informed to abandon their act of acquiring shares of the Patrick Company. To make it clear that the City Group was indulged in the act of insider trade, the ASIC should have proved the traders to be the employees of the company which they were unable to do. Hence the Citigroup company were successful in proving their arguments clearing all their accusation in the ASIC v Citigroup Case.

Conclusion
In the above report it is already described that the Citigroup company worked as cooperation of various departments like Equity Capital Market section, Investment Bank Division and the Equity Capital Market Division. Among these departments, the Investor Banking division was provided with the responsibility to advise the Toll Company in its financial undertakings. The Toll company had made u its mind to acquire the shares and bonds of the Patrick company. However, the employees of the Equity trading Department had brought the share of Patrick which the Tolls company intended to buy. The board of ASIC had accused Citigroup with the breach in the duty of loyalty, duty of care, act of insider trading, fiduciary duties, etc. On the contrary, the federal court denied all the charges put forward by the ASIC. Asic V Citigroup case assignments are being prepared by our law assignment help experts from top universities which let us to provide you a reliable online assignment help service.

References:
ASIC (2016). 07-171 Decision in ASIC v Citigroup. Retrieved from https://asic.gov.au/about-asic/media-centre/find-a-media-release/2007-releases/07-171-decision-in-asic-v-citigroup/

Braid, E. (2013). IS MY FINANCIAL ADVISOR A FIDUCIARY OR A STOCKBROKER? Retrieved from https://www.highpassasset.com/blog/58-is-my-financial-advisor-a-fiduciary-or-a-stockbroker.html

Carson, B. (2015). Is Your Financial Advisor a Fiduciary? Retrieved from https://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/03/19/is-your-financial-advisor-a-fiduciary

Ferguson, D. and Ma, C. (2014). Addisons Contractual Interpretation Series – Relationship clauses – can fiduciary obligations be avoided? Retrieved from https://www.addisonslawyers.com.au/knowledge/assetdoc/5566d4592c364479/Addisons%20Contractual%20 Interpretation%20Series%20Relationship%20Clauses.pdf

Jacobson, D. (2007). ASIC V CITIGROUP DECISION: NO CONFLICT AND NO INSIDER TRADING. Retrieved from: https://www.brightlaw.com.au/asic-v-citigroup-decision-no-conflict-and-no-insider-trading/

Ritchie, T. (2008). ASIC v Citigroup: An Amber Light For Proprietary Trading. Retrieved from: https://www.austlii.edu.au/au/journals/ElderLRev/2008/2.pdf

Seeto, G. (2017). ASIC v Citigroup - The compliance implications. Retrieved from https://www.claytonutz.com/knowledge/2008/january/asic-v-citigroup-the-compliance-implications

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