Tuesday, August 9, 2005
The SEC filed a civil fraud action against two former Citigroup executives, including Thomas Jones, the former head of its Global Investment Management division, for setting up an affiliated transfer agent to handle mutual fund transactions for Citigroup customers but did not pass along the savings to those investors. As discussed in an earlier post (here), Citigroup settled the SEC action by agreeing to pay $208 million in disgorgement, interest, and civil penalties. The SEC charged Jones and Lewis Daidone, CFO of the division, with aiding and abetting fraud under the Investment Advisors Act, and according to the Commission's Litigation Release (here):
The complaint alleges that Jones, the former chairman and chief executive officer of the asset management division, directed an effort to negotiate a deal that would permit Citigroup to reap much of the profit that the funds' third party transfer agent had been making. Jones approved the final structure of the deal fully aware that the affiliated transfer agent was projected to make tens of millions of dollars in profit each year for doing minimal work. The complaint further alleges that Jones intentionally or recklessly acted in disregard of his fiduciary duty by failing to take steps to ensure the funds' independent directors were fully informed of the details of the proposal and that Jones approved the presentation delivered to the funds' boards seeking approval of the self-dealing transaction knowing or recklessly disregarding that the presentation was materially misleading.
The complaint alleges that Daidone, a senior vice president of the Adviser and the funds' treasurer and chief financial officer, participated in the negotiations with the existing third party transfer agent and was the person responsible for making the presentation to the funds' boards in a way that led the boards to believe the affiliated transfer agent proposal was in the funds' best interests, which was not true.
According to a Reuter's story (on CNN.com here), Jones' attorney asserted that he was a "victim" of the fraud and "not a perpetrator." (ph)