updated 8/8/2005 6:38:46 PM ET 2005-08-08T22:38:46

Federal regulators on Monday charged two former executives of Citigroup Inc. with fraud in connection with alleged improprieties said to have garnered the financial services giant nearly $100 million at the expense of mutual fund shareholders.

The Securities and Exchange Commission said it had filed a civil lawsuit against Thomas W. Jones, the former chief executive of Citigroup's asset management division, and Lewis Daidone, who was treasurer and chief financial officer of the Smith Barney mutual funds in question, saying that they were two of the company officials principally responsible for the alleged fraud.

Jones's attorneys disputed the SEC's allegations and said they will challenge them in court.

A lawyer for Daidone didn't immediately return a telephone call seeking comment.

Citigroup, the nation's largest financial services company, agreed in May to pay $208 million to settle the SEC's fraud charges against two of its divisions — Citigroup Global Markets Inc. and Smith Barney Fund Management LLC, the investment adviser to the mutual funds — related to the creation and operation of an affiliated transfer agent that served the Smith Barney family of mutual funds.

Rather than passing a substantial fee discount on to the funds, the SEC said that the divisions, through the affiliated transfer agent, took most of the benefit of the discount for themselves. That netted nearly $100 million in profit at the funds' expense over five years.

The SEC alleged that the divisions misrepresented and omitted facts when recommending to the funds' boards of directors that the funds change from a third-party transfer agent to an agent that was a Citigroup affiliate.

New York-based Citigroup neither admitted nor denied wrongdoing in its settlement with the SEC.

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 agency said in its suit filed Monday in federal court in Manhattan.

His attorneys, James Doty and G. Irvin Terrell, called the SEC's allegations "unfounded and overreaching."

"Mr. Jones did not aid and abet any fraudulent activity during his watch at Citigroup Asset Management," they said in a statement. "The record will demonstrate that Mr. Jones achieved substantial benefit for mutual fund shareholders and that he made every effort to fulfill his fiduciary duty to them. Mr. Jones is a victim of this situation, not a perpetrator of wrongdoing, and we look forward to the opportunity to defend Mr. Jones."

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