Citigroup Is Back Under Scrutiny Over Practices
A smoke-break chat on a Sydney sidewalk between two Citigroup Inc. employees last August has drawn the scrutiny of Australia's market watchdog, just as the world's biggest financial institution is trying to recover from clashes with regulators elsewhere.
In that street-side conversation, the Australian Securities and Investments Commission alleges, a Citigroup manager issued instructions to one of the bank's proprietary traders, based on inside information about the bank's role in a local hostile takeover. Such a use of information would have breached rules controlling access to confidential market-sensitive information.
Citigroup denies the charges and has pledged to "vigorously defend" its actions.
It isn't clear if the allegations will prove to be more than a minor bump for the big bank. The charges follow a series of problems, which have led to run-ins with regulators in the U.S., Japan, Europe and India. In perhaps the most dramatic example, regulators in Japan stripped Citigroup's local private-banking unit of its license in 2004 after discovering it had engaged in a pattern of questionable practices.
In the U.S., the Federal Reserve took the unusual step last year of directing Citigroup's management to avoid doing big acquisitions for a while and instead focus on strengthening internal controls. Citigroup's chief executive, Charles Prince, has been moving recently toward moving past that chapter in the bank's history. He wants to expand in foreign markets and has positioned Citigroup to spend $3 billion to buy a majority stake in Guangdong Development Bank in China.
The alleged violations in Australia involve a touchy issue for regulators everywhere: so-called Chinese walls. Investment banks working on potentially market-moving transactions must ensure internal barriers prevent information on those deals from being used by other businesses within their firms, such as those engaged in stock trading.
The Australian regulator's action touches on the relationship between investment banking and proprietary trading, or banks trading stocks on their own account, at a time when many investment banks are expanding their proprietary businesses. In recent years, U.S. regulators have focused on ensuring there is separation between stock research and investment banking.
"There are lots of issues about Chinese walls. It's a big problem for banks," said Nick Seddon, a lawyer at law firm DLA Piper Rudnick Gray Cary in Hong Kong.
During that cigarette break on Aug. 19, the Australian Securities and Investments Commission alleges, information about Citigroup's investment-banking business was made known to a trader on its proprietary-trading desk. It isn't clear whether the bank profited on that exchange of information, but the regulator argues it violated the law and placed Citigroup's interests at odds with those of its client.
Citigroup was advising Australian freight handler Toll Holdings Inc. on a yet-to-be-announced A$4.6 billion hostile bid for Sydney-based Patrick Corp., Australia's biggest port cargo handler. Market speculation was rife that a deal was near.
That morning, the Sydney Morning Herald published an article that the takeover bid appeared imminent. Like other brokers on the street, Citigroup proprietary trader Andrew Manchee began buying Patrick stock, a day after Patrick announced a profit warning, according to the court document filed by the regulator with a federal Australian court. At about lunchtime, Citigroup's head of Australian equities, Malcolm Sinclair, became aware of the bank's heavy trading in the stock, according to the court document.
Mr. Sinclair, who has access to information about Citigroup's investment-banking deals, spoke with Paul Darwell, head of equity derivatives and Mr. Manchee's superior. According to the court document, Mr. Sinclair said words to the effect of, "Do you know who is buying Patrick's shares?" and "We may have a problem with that." It isn't clear from the court documents if Mr. Sinclair was aware of Citigroup's role in the deal.
According to the regulator's court filing, Mr. Sinclair's comments led Mr. Darwell to make "a supposition that Citigroup was acting for Toll" in the Patrick takeover. At 3:30 p.m., when Mr. Darwell asked Mr. Manchee to go outside for a cigarette, Mr. Manchee had already bought about one million shares of Patrick.
During the smoke break, Mr. Darwell told Mr. Manchee to stop buying Patrick shares without giving a reason, the documents say.
After that chat, Mr. Manchee began selling shares in Patrick before the market closed at 4 p.m., inferring from Mr. Darwell's comments that Citigroup was involved in the transaction, the document says. In total he bought 950,000 shares, representing 5.71% of the total volume, according to the court documents.
Patrick's shares rose 13% that Friday to A$6.45. The following Monday morning, Toll announced a hostile bid for Patrick at A$6.70 in shares and stock. Once the public bid was made, Citigroup placed Patrick's shares on its "restricted list," which prevents Citigroup proprietary traders from buying or selling the shares.
Because Citigroup had amassed a significant position in Patrick, the regulator contends that the bank was "confronted with a conflict between its interests and the interests of Toll." On Friday, the Securities and Investments Commission filed the civil action against Citigroup. The regulator is asking the court to order Citigroup pay fines to the government, compensate Toll for any loss caused by Citigroup's trading in Patrick shares and to make a public declaration that it breached the provisions of Australia's companies law governing conflict of interest and insider trading, among others.
It appears the trading Mr. Manchee did prior to the smoke break isn't in question, because only after that conversation with Mr. Darwell was he considered privy to insider information.
A Citigroup spokeswoman said that the bank's policy dictates the stock of a company targeted by another company it is advising isn't placed on the restricted list for its proprietary traders until an official filing of the takeover or other action is filed with regulators.
"We believe that our robust information barriers, or Chinese walls, are the most appropriate way to manage potential conflicts of interest," the bank said in a statement.
The Australian court case harks back to what Mr. Prince, who became CEO in October 2003 and is slated to become the bank's chairman later this month, told investors before last Christmas, "It's not that we're never going to have a problem," he said. "Anything based on human endeavor and certainly any business that involves risk-taking, you're going to have problems from time to time."
花旗员工街头闲谈惹火上身
去年8月份，两位花旗集团(Citigroup Inc.)员工在悉尼人行道上的抽烟闲谈使这家全球最大的金融机构陷入同澳大利亚市场监管机构的纠纷之中。而此时正值花旗集团努力消除与全球众多监管机构的一系列冲突带来的负面影响之际。
澳大利亚证券及投资事务监察委员会(Australian Securities and Investments Commission, 简称：澳洲证监会)宣称，在那次路边谈话中，一位花旗集团的经理根据该行担任一起敌意收购的顾问那里获得的内部信息向一位自营交易员提供了指导意见。这种做法违反了银行内部对接触市场敏感的机密信息的规定。
花旗集团否认了这些指控，并表示将“为我们的行为做出积极的辩护。”
在这次麻烦之前，花旗集团近年来就发生过一系列尴尬的遭遇，涉及同美国、日本、欧洲和印度等监管机构的冲突。其中最轰动的一次是，日本监管机构由于发现花旗银行从事了包括允许客户洗钱等存在问题的交易方式，在2004年吊销了花旗日本子公司的执照。
澳洲证监会宣称，花旗银行在澳大利亚的做法违反了全球监管机构都感到棘手的职能分隔制度。投资银行在进行可能影响市场走势的交易时必须确保这些内部的防范制度能阻止该公司的其他机构，如股票交易部门，使用这类信息。
澳大利亚监管机构的做法触及到了投资银行和自营交易部门之间的关系，而当前，许多投资银行都在扩大其自营业务。近年来，美国监管机构的重点一直是保证股票研究和投资银行部门能保证足够的分隔。
律师事务所DLA Piper Rudnick Gray Cary驻香港律师尼克?塞登(Nick Seddon)说，职能分隔制度存在许多问题。这对银行而言是件大事。
澳洲证监会称，在去年8月19日的交谈中，花旗投资银行业务方面的信息被从事自营交易的交易员获知。澳洲证监会表示，此举违反了法律，并导致了花旗集团的利益同客户利益相冲突。
当时，花旗集团为澳大利亚货运公司Toll Holdings Ltd.以46亿澳元（合33亿美元）敌意收购澳大利亚最大的港口货物处理商Patrick Corp.充当顾问（此项交易至今尚未宣布）。市场普遍猜测即将发生交易。当天早间，《悉尼先驱晨报》(Sydney Morning Herald)发表文章称，很快将宣布收购交易。
澳洲证监会提交给一家澳洲联邦法院的文件显示，同其它经纪商一样，花旗的自营交易员安德鲁?曼齐(Andrew Manchee)开始买进Patrick股票，此前一天Patrick刚刚宣布了收益预警。根据法庭文件称，在午餐时间前后，花旗集团澳大利亚股票部门的负责人马尔科姆?辛克莱(Malcolm Sinclair)开始意识到该银行大量买进了这只股票。
能够获得花旗投资银行交易信息的辛克莱同曼齐的上级，股票衍生工具部门的负责人保罗?达维尔(Paul Darwell)进行了交谈。根据法庭文件，辛克莱大体说了这样的话：“你知道谁正在买进Patrick股票吗？”“我们在这点上可能出现问题。”从法庭文件中无法看出辛克莱是否意识到了花旗在此项交易中的作用。
根据澳洲证监会提交的文件，辛克莱的言语使达维尔猜测花旗集团在Patrick的收购中担任了Toll的顾问。
在当天下午3点半达维尔要求曼齐出去抽烟时，曼齐已经买进了大约100万股Patrick股票。法庭文件中称，在抽烟时，达维尔告诉曼齐停止买进Patrick股票，但没有说明原因。交谈后，曼齐从达维尔的言语中得到了花旗参与了此项交易的暗示，并在下午4点收盘前的这段时间里开始卖出Patrick股票。法庭文件称，曼齐总共买进了950,000股股票，占总交易量的5.71%。
当天（周五），Patrick的股票上涨了13%，收于6.45澳元。在8月22日（即下周一）早间，澳大利亚最大的货运公司Toll宣布以每股6.70澳元的价格敌意收购Patrick。一旦公开发布收购消息，花旗集团就会将Patrick股票列入所谓的受限名单中，即花旗的自营交易员不能买卖该股。
澳洲证监会称，由于花旗集团已经持有Patrick的大量头寸，该银行就面临著其利益与Toll利益之间的冲突。澳洲证监会上周五对花旗集团涉嫌内幕交易和管理利益冲突不当的行为提起了民事诉讼。看来曼齐在抽烟前进行的交易并不存在问题，因为只是在同达维尔交谈后，他才成为了解内幕消息的人。
花旗集团的发言人表示，该行的政策规定，其担任顾问的公司准备收购的另一家公司的股票并不在自营交易员的受限名单中，除非在已向监管机构正式提交收购或其它行动的文件后。花旗集团在声明中表示：“我们认为我们严格的职能分隔制度是管理潜在利益冲突的最佳方式。”
Toll一案的审理过程可能长达18个月。花旗集团目前正在努力消除内幕交易和在海外市场管理松散对其声誉的不良影响。在2月份时，美国证券交易委员会(Securities and Exchange Commission)指责花旗集团前高级副董事长维克多?曼尼兹(Victor Menezes)涉嫌内幕交易，并最终以270万美元达成了和解。2004年8月，一个绰号为Dr. Evil的债券交易策略引发了欧洲监管机构的调查。
按照一年前美国联邦储备委员会(Federal Reserve)要求花旗集团整顿内部管理的指示，首席执行长查尔斯?普林斯(Charles Prince)最近几个月不断强调其公司在改进驻全球各地30万名员工职业行为的努力。2003年10月担任首席执行长的普林斯将在本月晚些时候出任该公司董事长。
在去年的大部分时间里，花旗集团一直处于守势，重点是希望通过普林斯所称的“五点计划”加强内部控制、员工培训和内部沟通，从而让Fed满意。普林斯和他的主要副职曾表示，他们很快就将解决监管机构提出的所有问题。
对普林斯而言，澳大利亚此案验证了他在去年圣诞节前对投资者的讲话。当时他说，人不可能永远不犯错误，人们所做的任何事情以及存在风险的任何业务都可能会出现问题。
