March 31 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank, is being sued for insider trading in Australia, the first time a company has ever faced such charges in the country.

Australian Securities and Investments Commission Deputy Chairman Jeremy Cooper said in a statement today that Citigroup used confidential information about Patrick Corp., the nation's largest cargo handler, ``against the interest of its client,'' Toll Holdings Ltd. Melbourne-based Toll has made a A$4.6 billion ($3.3 billion) bid for Patrick. Citigroup denied the claim.

Citigroup was forced to pay $4.7 billion over the past two years after being accused of helping bankrupt Enron Corp. and WorldCom Inc. defraud investors. Citigroup also settled claims that its research was biased and that it misappropriated mutual fund fees. The bank's difficulties with law-enforcement authorities extended to Japan, where the New York-based company shut its private bank in 2004 amid charges of money laundering.

The accusation that this year's top mergers adviser violated securities laws is ``a serious charge to answer'' in Australia, said Ian Harper, a professor at Melbourne Business School. ``When an organization acts on both sides of the Chinese walls, it must be squeaky clean,'' he said.

The scandals have tested the confidence of Citigroup shareholders and regulators in the company's management team. The U.S. Federal Reserve last year discouraged Citigroup, which has $1.49 trillion of assets and 300,000 employees in more than 100 countries, from making large acquisitions until Chief Executive Officer Charles Prince's plan to tighten internal controls took hold.

Underperforming Stock

The stock fell 5 cents to $47.23 today in New York Stock Exchange composite trading.

`This is not a needle-mover,' said Mark Batty, an analyst PNC Advisors, which oversees $50 billion and holds Citigroup shares. ``Citi has really been working to improve their compliance and corporate governance practices, so hopefully it's a one-off situation.''

Shares of Citigroup have risen 4 percent since Prince took over on Oct. 1, 2003, trailing those of its peers.

The Australian regulator filed civil proceedings in the Federal Court against Citigroup, alleging it used insider information to trade shares of Sydney-based Patrick. The securities commission is seeking a fine and an order for Citigroup to keep price-sensitive information on deals away from traders who buy and sell shares on the firm's behalf.

Fine Possible

Citigroup may be fined as much as A$1 million, said Anne Lampe, a spokeswoman for the regulator. Non-financial penalties include community service orders and as much as three years probation, according to the regulator's Web site. The suit will be heard April 28 in Australia's federal court.

``Citigroup is extremely disappointed by the action,'' said Judy Hitchen, a company spokesman in Sydney, describing the accusation as baseless. ``This is an attempt to regulate the proprietary trading desks, which are a feature of all major investment banks.''

In a later statement, Citigroup said it complied with all Australian rules and its own internal policies.

``We are confident that Citigroup and our employees acted appropriately,'' Christina Pretto, a spokeswoman in New York, said in the emailed statement. ``We believe that our robust information barriers, or Chinese walls, are the most appropriate way to mange potential conflicts of interest.''

`Speculation'

The Sydney Morning Herald reported Aug. 18 that Toll, the country's biggest freight company, may make a takeover bid for Patrick, without citing the source of the information. Patrick's stock rose as much as 15 percent the next day with more than 20 million shares traded, compared with the daily average of 3.2 million shares in the previous six months.

Citigroup was one of several banks trading ``in a market where there was significant public speculation about a possible bid by Toll,'' said Stephen Roberts, Citigroup's head of investment banking in Australia, in a statement. ``If an investment bank had to stop all of its other activities every time it took a corporate advisory mandate, market activity would stall,'' he said.

According to a court document filed yesterday by the regulator, Paul Darwell, Citigroup's head of equity derivatives in Australia, met Aug. 19 with trader Andrew Manchee outside the company's Park Street offices and told him to stop buying shares of Sydney-based Patrick for Citigroup's account.

Trades Trigger Probe

Manchee had bought more than 1 million Patrick shares earlier that day and then sold 192,352 shares, the document said. His trades triggered an investigation into whether he knew Citigroup was advising Toll.

Darwell declined to comment, referring to Citigroup's press statement. Manchee didn't return messages left on his office and cell phone, or to e-mailed questions. Neither employee is a defendant in the suit.

Toll said in a statement today that the suit won't affect the bid for Patrick and Citigroup remains its adviser. Citigroup has more than 900 corporate clients in Australia, according to its Web site.

In previous insider-trading cases in Australia, Simon Hannes, a former Macquarie Bank executive, was sentenced to 2 1/2 years prison in 2002 for purchasing TNT Ltd. options before the 1996 takeover of the transport company by Dutch group Royal KPN NV. Macquarie Bank advised TNT on the transaction.

Rivkin

Former Australian stockbroker Rene Rivkin was sentenced to nine months periodic detention and fined A$30,000 in 2003 for insider trading in Qantas Airways Ltd. shares, after learning of its planned takeover of discount carrier Impulse Airlines.

Citigroup's board named Prince to succeed Sanford Weill as chairman on March 21, rewarding 56-year-old Prince for revamping Citigroup's strategy and tightening his grip on management and internal controls after a series of missteps.

In the U.S., Citigroup paid $2.7 billion in May 2004 to settle a class-action lawsuit that accused it of playing a role in the collapse of WorldCom. The bank said June 10 it would pay $2 billion to settle a lawsuit filed by Enron shareholders accusing it of helping the company hide debt in off-the-books partnerships.

The forced shutdown of its Japanese private bank, and accords to end claims of publishing biased research and misusing mutual-fund fees added more than $800 million to the tally. Citigroup didn't admit or deny wrongdoing in the mutual-fund investigation.

To contact the reporter on this story: Kevin Foley in Sydney at k.foley@bloomberg.net

Last Updated: March 31, 2006 16:18 EST