A class of Smith Barney fund investors have reached a US$5 million settlement after nearly a decade of litigation in which the brokerage firm and one of its employee was accused of misleading investors about fees in company prospectuses.
The proposed settlement would resolve claims against former Smith Barney senior vice president Lewis Daidone and Citigroup, which owned the brokerage at the time of the events.
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The investors asked a New York federal judge to approve the US$5 million settlement.
According to papers filed in the court, the class of investors agreed to settle the suit out of fears that the brokerage would be unable to fund a judgment that’s any larger than the settlement amount.
"The prospect of proving damages raised significant risks and those risks support granting preliminary approval of the Settlement," the filing said.
"In addition, plaintiffs are confident that even if they were to prevail on liability and damages at trial, defendants would appeal the verdict, especially in light of the dispute surrounding damages," it added.
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By GlobalDataThe settlement stems from an eight-year-old case over an alleged practice in which Smith Barney received kickbacks for providing back-office services to mutual funds, bringing in more than US$100 million in profits for Citigroup.
In May 2005, Citigroup agreed to pay US$208 million to resolve a related civil fraud case brought by the US Securities and Exchange Commission.
In August last year, US District Judge William Pauley dismissed much of the case saying Smith Barney and its executives couldn’t be held liable for Securities Exchange Act claims of scheme liability.
The plaintiffs couldn’t sufficiently show that they relied on Smith Barney’s alleged deceptive conduct in connection with their decision to invest in the mutual funds, the judge said.
In March this year, Pauley granted class certification to investors who between September 11, 2000, and June 24, 2004, bought or sold shares in 17 Smith Barney funds whose prospectuses Daidone had signed.
