Jan. 8 (Bloomberg) -- A Citigroup Inc. unit was sued over claims the bank published a “malicious” and inaccurate research note on Halyvourgiki Inc., a Greek steelmaker that says it competes with a Citigroup client.

Citigroup Global Markets Ltd. distributed “falsehoods” about revenue, market share and investments made by Halyvourgiki, the Athens-based steelmaker said in a suit filed in London in September and released yesterday by the court. The data was published in 2007 alongside accurate figures about Halyvourgiki competitor Sidenor SA, a publicly traded Citigroup client, the lawsuit said.

Citigroup “stands to benefit or profit commercially, and/or in terms of its enhanced business reputation from disparaging or inhibiting investment in” Sidenor’s rivals, closely held Halyvourgiki said in the lawsuit, which seeks undisclosed damages and an order halting further publication. Citigroup, based in New York, said in a statement that it considers the lawsuit without merit and will vigorously defend its position.

While lawyers said it is the first time a bank has been sued in the U.K. over a research note, analyst reports have been the target of other European litigation. LVMH Moet Hennessy Louis Vuitton SA privately settled a French lawsuit in 2007 that claimed Morgan Stanley analysts issued biased reports that harmed LVMH while the bank was advising rival Gucci Group NV.

The Halyvourgiki lawsuit was filed after U.K. authorities in March said they were investigating potential market abuse by traders spreading false rumors to manipulate share prices. The claim is a sign companies may pursue their own remedies, lawyers said.

‘Novel Action’

“It is a novel action that will require compelling evidence,” said Jean-Pierre Douglas-Henry, a litigation partner at Lawrence Graham in London who isn’t involved in the case. “It will take more than factual errors in an analyst’s report to constitute malicious falsehood.”

Erietta Papadogianni, a spokeswoman for Sidenor and its parent company, Viohalco SA, said the suit is a dispute between Halyvourgiki and Citigroup and declined to comment further. Sidenor isn’t a defendant in the lawsuit.

Chris Storr, the London-based lawyer for Halyvourgiki, declined to comment.

Under U.K. law, market abuse includes dissemination of information likely to leave a false or misleading impression about a qualifying investment, which can include publicly traded shares, if the person should have reasonably known the data were false or misleading.

“Even if these facts were proven, this may be one step too far removed for the courts to accept as market abuse,” Douglas- Henry said.

Claims

Halyvourgiki claims Citigroup misstated its revenue figures for 2005 and 2006 and sent research to bankers and other investors predicting the company’s market share would fall to 11 percent in 2007 and to almost 6 percent by 2015.

The correct revenue figures were publicly available and published in two national newspapers, Halyvourgiki said. Halyvourgiki’s share of the Greek steel market was 19.7 percent and 20.1 percent in 2005 and 2006, and 24.6 percent in 2007, the company said in the lawsuit.

The case is Halyvourgiki Inc. v. Citigroup Global Markets Ltd., No. HQ08X03773.

To contact the reporters responsible for this story: Caroline Byrne in London at cbyrne12@bloomberg.netJames Lumley in London at jlumley1@bloomberg.net

Last Updated: January 8, 2009 12:54 EST