[ by Howard Haykin ] Not all cases end in settlements or adverse decisions.  On Wednesday, U.S. District Judge William Pauley dismissed nearly all of a long-running lawsuit accusing Citigroup Inc, its former Smith Barney brokerage unit and two executives of shortchanging mutual fund investors out of more than $100 million of fee discounts. The judge threw out all claims against Citigroup and the former Smith Barney Fund Management LLC, and Thomas Jones, formerly CEO of Citigroup Asset Management.  Judge Paley also dismissed some claims against Lewis Daidone, a former Smith Barney SVP. Origin of the Complaint. The case arose from Citigroup's creation of an in-house transfer agent, Citicorp Trust Bank, that could charge lower fees than First Data Corp, whose contract was expiring.  Fund shareholders complained that the new transfer agent continued to charge higher fees, in a "kickback scheme" that enabled the bank to take in more than $100 million of profit that should have been passed on to them. While Citigroup agreed to pay $208 million in fines and restitution to settle a related SEC civil fraud case, Judge Pauley said recent U.S. Supreme Court decisions undermined the argument by fund shareholders that they had bought their shares in reliance on an assumption that Citigroup would honor its fiduciary duties.

"This theory of reliance - if accepted - would amount to a novel presumption of reliance in the mutual fund context." -- Judge Pauley.

The judge let stand some claims against Daidone with respect to misstatements in documents that he signed.  Lawyers for Jones and Daidone did not immediately respond to requests for comment.  An SEC case against the former executives was dismissed in 2007. Morgan Stanley now owns a majority of Smith Barney, under a joint venture with Citigroup, but the lawsuit predated that venture. The litigation before Judge Pauley was delayed last September after the judge, citing "epic failures" on both sides, removed the lead plaintiff at the time upon learning that it never owned shares that were part of the case.  That delay and the passage of time hurt the plaintiffs' case, Pauley said.  "In the Eclogues, Virgil observed that 'time bears away all things, even our minds,'" he wrote. "Virgil's maxim applies to legal theories as well." The case: In re: Smith Barney Transfer Agent Litigation, U.S. District Court, Southern District of New York, No. 5-07583. For further details, go to:  [Reuters, 8/15/12].