SEC Charges Thomas W. Jones and Lewis E. Daidone with Fraud Relating to Creation of Affiliated Transfer Agent to Serve Citigroup Mutual Funds
The SEC charged former Citigroup executives Thomas W. Jones and Lewis E. Daidone with fraud for orchestrating a self-dealing scheme to create an affiliated transfer agent that diverted tens of millions in savings from mutual fund shareholders to Citigroup, but the case against them was dismissed with prejudice in February 2007 after summary judgment.
The SEC alleged that Thomas W. Jones and Lewis E. Daidone fraudulently structured an affiliated transfer agent deal to provide steep discounts to Citigroup’s mutual funds, allowing the company to capture tens of millions in profits that should have benefited shareholders. Jones, as CEO of the asset management division, directed the scheme and approved misleading presentations to fund boards, while Daidone, as CFO and treasurer, delivered those deceptive materials to secure approval, both violating Sections 206(1) and 206(2) of the Investment Advisers Act. Although Citigroup paid $208 million in May 2005 to compensate investors, the SEC’s individual enforcement action against Jones and Daidone was dismissed with prejudice on February 26, 2007.
The SEC charged former Citigroup executives Thomas W. Jones and Lewis E. Daidone with fraud for orchestrating the creation of an affiliated transfer agent that provided deeply discounted services to Citigroup’s Smith Barney mutual funds, enabling the company to siphon tens of millions of dollars in profits that rightfully belonged to shareholders. Jones, as CEO of the asset management division, directed the deal and knowingly approved presentations to the funds’ independent boards that concealed the self-dealing nature of the transaction, while Daidone, as CFO and treasurer, delivered those materially misleading materials to secure board approval. Both individuals were accused of aiding and abetting violations of Sections 206(1) and 206(2) of the Investment Advisers Act by failing to disclose the true financial benefits to the funds and breaching their fiduciary duties. This enforcement action followed Citigroup’s May 2005 settlement, in which the company agreed to pay $208 million to compensate harmed mutual fund investors. The SEC sought permanent injunctions, disgorgement of ill-gotten gains, and civil penalties against Jones and Daidone. However, on February 26, 2007, the U.S. District Court for the Southern District of New York granted summary judgment in favor of both defendants, dismissing the case with prejudice, effectively ending the SEC’s pursuit of individual liability in the matter.
Extracted insights
- $208.00M $208 million $100M–$1B
- person lewis daidone
- agency Securities and Exchange Commission
- person thomas w. jones
- court united states district court for the southern district of new york
- United States District Court For The Southern District Of New York granted motions for summary judgment filed by defendants Jones and Daidone
- Securities And Exchange Commission filed enforcement action charging former Citigroup executives Thomas W. Jones and Lewis Daidone with fraud
- Citigroup agreed to pay $208 million
- Thomas W. Jones directed effort to negotiate a deal
- Thomas W. Jones approved final structure of the deal
- Lewis Daidone participated in negotiations with the existing third party transfer agent
- Securities And Exchange Commission charges Jones and Daidone with aiding and abetting violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940
NOTE: On February 26, 2007, the United States District Court for the Southern District of New York granted motions for summary judgment filed by defendants Jones and Daidone, dismissing the case with prejudice. SEC CHARGES THOMAS W. JONES AND LEWIS E. DAIDONE WITH FRAUD RELATING TO CREATION OF AFFILIATED TRANSFER AGENT TO SERVE CITIGROUP MUTUAL FUNDS FOR IMMEDIATE RELEASE 2005-113 Action follows Commission recovery of $208 million for investors in May, 2005 Washington, DC, August 8, 2005 - The Securities and Exchange Commission today filed an enforcement action in the United States District Court for the Southern District of New York charging former Citigroup executives Thomas W. Jones and Lewis Daidone with fraud relating to Citigroup's creation of an affiliated transfer agent to serve its Smith Barney family of mutual funds at steeply discounted rates. Rather than passing the substantial fee discount on to the mutual funds, Citigroup took most of the benefit of the discount for itself, reaping tens of millions of dollars in profit at the expense of mutual fund shareholders. The actions against the individuals follows the Commission's settlement with the company in May in which Citigroup agreed to pay $208 million that will distributed to victims of the fraud. In its complaint filed today, the Commission alleges that Jones and Daidone were two of the officers principally responsible for the fraud. The complaint alleges that Jones, the former 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. The complaint charges Jones and Daidone with aiding and abetting the Adviser and Global Markets' violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, which prohibit registered investment advisers from employing devices, schemes or artifices to defraud clients or prospective clients and from engaging in transactions, practices, or courses of business that operated or would operate as a fraud or deceit upon clients or prospective clients. The complaint seeks permanent injunctions against future violations of those provisions, disgorgement of any ill-gotten gains and civil penalties. See also: Litigation Release Contact Persons: Mark K. Schonfeld Director, Northeast Regional Office 212-336-1020 Andrew M. Calamari Associate Regional Director, Northeast Regional Office 212-336-0042 James M. McGovern Senior Trial Counsel, Northeast Regional Office 212-336-0134 http://www.sec.gov/news/press/2005-113.htm Home | Previous Page Modified: 08/08/2005
NOTE: On February 26, 2007, the United States District Court for the Southern District of New York granted motions for summary judgment filed by defendants Jones and Daidone, dismissing the case with prejudice. SEC CHARGES THOMAS W. JONES AND LEWIS E. DAIDONE WITH FRAUD RELATING TO CREATION OF AFFILIATED TRANSFER AGENT TO SERVE CITIGROUP MUTUAL FUNDS FOR IMMEDIATE RELEASE 2005-113 Action follows Commission recovery of $208 million for investors in May, 2005 Washington, DC, August 8, 2005 - The Securities and Exchange Commission today filed an enforcement action in the United States District Court for the Southern District of New York charging former Citigroup executives Thomas W. Jones and Lewis Daidone with fraud relating to Citigroup's creation of an affiliated transfer agent to serve its Smith Barney family of mutual funds at steeply discounted rates. Rather than passing the substantial fee discount on to the mutual funds, Citigroup took most of the benefit of the discount for itself, reaping tens of millions of dollars in profit at the expense of mutual fund shareholders. The actions against the individuals follows the Commission's settlement with the company in May in which Citigroup agreed to pay $208 million that will distributed to victims of the fraud. In its complaint filed today, the Commission alleges that Jones and Daidone were two of the officers principally responsible for the fraud. The complaint alleges that Jones, the former 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. The complaint charges Jones and Daidone with aiding and abetting the Adviser and Global Markets' violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, which prohibit registered investment advisers from employing devices, schemes or artifices to defraud clients or prospective clients and from engaging in transactions, practices, or courses of business that operated or would operate as a fraud or deceit upon clients or prospective clients. The complaint seeks permanent injunctions against future violations of those provisions, disgorgement of any ill-gotten gains and civil penalties. See also: Litigation Release Contact Persons: Mark K. Schonfeld Director, Northeast Regional Office 212-336-1020 Andrew M. Calamari Associate Regional Director, Northeast Regional Office 212-336-0042 James M. McGovern Senior Trial Counsel, Northeast Regional Office 212-336-0134 http://www.sec.gov/news/press/2005-113.htm Home | Previous Page Modified: 08/08/2005