Smith Barney fund investors to settle case for $4.95 mln
NEW YORK Aug 12 (Reuters) - Mutual fund investors have reached a $4.95 million settlement in a long-running lawsuit accusing a former executive of brokerage Smith Barney of defrauding them out of fee discounts.
The proposed settlement, disclosed in papers filed late Friday in U.S. District Court in New York, would resolve claims against former Smith Barney senior vice president Lewis Daidone and Citigroup Inc, which owned the brokerage at the time of the events.
Citigroup had previously been dismissed from the case but is listed as covered by the settlement.
The accord, which requires a judge's approval, stems from an eight-year-old case over an alleged practice in which Smith Barney received kickbacks for providing back-office services to mutual funds, bringing in more than $100 million in profits for Citigroup.
Citigroup agreed to pay $208 million in May 2005 to resolve a related civil fraud case brought by the U.S. Securities and Exchange Commission.
Three months later, investors in the funds filed their own lawsuit, which continued even after the SEC in 2010 distributed more than $100 million to fund investors.
In August 2012, U.S. District Judge William Pauley tossed all the claims investors asserted against Citigroup, Smith Barney and former Citigroup Asset Management Chief Executive Thomas Jones. He allowed some claims to continue against Daidone.
In March, Pauley granted class certification to investors who between September 11, 2000, and June 24, 2004, bought or sold shares in 17 Smith Barney funds whose prospectuses Daidone had signed.
The lawsuit said the bank created an in-house transfer agent for the funds called Citicorp Trust Bank, which replaced the previous transfer agent, First Data Investor Service Group, after its contract expired in 1999.
The investors contended that while Citicorp Trust Bank was nominally in charge of providing transfer agent services, it subcontracted the bulk of the work to First Data for lower fees than it previously charged. The investors alleged that Citi then kept the savings for itself rather than passing them on to the funds.
The investors accused Daidone, who had been among those who convinced the funds' boards to replace First Data, of failing to disclose the scheme in regulatory filings he signed.
The settlement would resolve the last claims against Daidone stemming from the alleged fraud. The SEC sued him and another executive in a separate case in 2005, but a federal judge dismissed that case in February 2007.
Neither a lawyer for Daidone nor for the plaintiffs immediately responded to requests for comment. A spokeswoman for Citigroup declined comment.
The class action had a peculiar procedural history. In September 2011, Pauley, citing "epic failures" by both sides in the litigation, removed an Illinois pension fund as lead plaintiff after finding out it never owned shares at issue in the case.
The judge subsequently appointed a new lead plaintiff, David Zagunis, as well as new counsel from the law firms WeissLaw and Stull, Stull & Brody.
The lawsuit predates a joint venture between Citigroup and and Morgan Stanley over Smith Barney. Morgan Stanley said in June it would buy the 35 percent of Smith Barney it did not already own from Citigroup for $4.7 billion.
The case is In re: Smith Barney Transfer Agent Litigation, U.S. District Court, Southern District of New York, No. 05-07583.
- Housing, jobs data weaken, but overall economic picture still upbeat
- Target cyber breach hits 40 million payment cards at holiday peak |
- Pizza outlet attacked as India, U.S. fail to cool diplomat row |
- New York Mayor-elect's reputation for lateness parodied on Twitter
- Putin critic Khodorkovsky free after pardon, heads for Germany |