Bloomberg News

Smith Barney Shareholder Class Approved in Fund Lawsuit

March 21, 2013

Investors in Smith Barney mutual funds can sue as a group over claims that shareholders were harmed by a kickback scheme in which Citigroup Inc. (C:US) pocketed fee savings, a judge ruled.

U.S. District Judge William Pauley in Manhattan certified a class of Smith Barney mutual fund investors who bought or redeemed shares from Sept. 11, 2000 to June 24, 2004, according to a decision filed today.

A class action allows plaintiffs’ to share the costs of gathering evidence and pursuing claims. When cases are bundled together, plaintiffs have greater leverage in trying to persuade defendants to settle.

The lawsuit was filed against Smith Barney Fund Management LLC and Citigroup Global Markets Inc. in 2005, after Citigroup agreed to pay $208 million to settle claims by the U.S. Securities and Exchange Commission that its subsidiaries kept fees that should have been turned over to Smith Barney’s mutual funds.

Citigroup replaced a stock transfer agent with an in-house transfer agent and subcontracted with the original company at lower rates than it had previously charged, according to court papers.

Controlling Stake

Investors are suing Lewis Daidone, who was a senior vice president and director of Smith Barney Fund Management and a managing director of Citigroup Global Markets. He resigned in 2004, according to the shareholder complaint.

In 2009, Morgan Stanley (MS:US) bought a controlling stake in a joint venture that combined Smith Barney with its own brokerage. The New York-based bank has said it plans to buy the rest of the venture from Citigroup this year.

The case is In re Smith Barney Transfer Agent Litigation, 05-cv-07583, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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Companies Mentioned

  • C
    (Citigroup Inc)
    • $50.03 USD
    • -0.06
    • -0.12%
  • MS
    (Morgan Stanley)
    • $33.24 USD
    • -0.16
    • -0.48%
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