Updated from 12:23 p.m. EST

Citigroup ( C), the world's biggest financial services firm, is in regulatory trouble once again. This time it is over trading activity in the land down under.

Australian securities regulators on Friday filed civil charges against Citigroup, accusing the New York-based banking giant of engaging in improper insider trading in a corporate merger it was advising on. The Australian Securities & Investments Commission said it filed a formal complaint against Citigroup in the nation's federal court.

Aussie regulators contend Citigroup's traders used confidential information in making "substantial'' proprietary trades in shares of Patrick Corp., just days before Toll Holdings announced a $4.6 billion takeover bid for the cargo shipping company. At the time of the trading, Citigroup's investment bankers were serving as advisers to Toll in its hostile takeover bid, which is still pending.

Proprietary trading is trading for a firm's own account.

In recent years, proprietary trading has become a big source of revenue for Wall Street firm such as Citigroup, Goldman Sachs ( GS) and Lehman Brothers ( LEH). But some have suggested that Wall Street firms are profiting at their customers expense when they engage in proprietary trading because they enter the market with a huge information advantage

"This is a significant case raising two very important issues for the securities industry: having adequate arrangements for managing inside information and dealing with conflicts of interest,'' says Jeremy Cooper, deputy chairman of the Australian regulatory agency. "Citigroup traded on inside information and directly against the interests of its client.''

A copy of the complaint was not immediately available.

A Citigroup spokeswoman says: "We are confident that Citigroup and our employees acted appropriately and complied with applicable Australian rules as well as our own policies. We will vigorously defend our actions in this proceeding.''

The spokeswoman adds the bank has "well-established policies, which prohibit communications between those involved in advisory services and those engaged in proprietary trading activities.''

The latest charges, however, are a blow to Citigroup CEO Charles Prince's effort to clean up the bank's rogue image, given its involvement in most of the major corporate scandals on Wall Street. The bank has paid out more than $5 billion in civil settlements and regulatory fines over the past few years for its transgressions.

Two years ago, Citigroup's sprawling worldwide operations took a hit when Japanese regulators shuttered the firm's private banking operation, portraying the business a glorified bucket shop that misled customers, financed stock manipulation and kept shoddy records.

Citigroup's regulatory woes had become so serious that the Federal Reserve even recommended last year that the bank hold off on making any major acquisitions until it puts more stringent conflict-of-interest controls in place.

Recently, there have been signs that U.S. bank regulators might be more receptive to Citigroup doing a major deal. The bank, earlier this week, emerged as one of the leading bidders for Turkey's Finansbank. Analysts say the Turkish lender could fetch between $5 billion and $6 billion.

In the Australian enforcement action, regulators are seeking both a fine and a "declaration'' that Citigroup violated the nation's laws barring insider trading and conflicts of interest in the securities industry.

Regulators say the allegedly improper trading by Citigroup occurred on Aug. 19, 2005, the last business day before Toll unveiled its hostile bid on Aug. 22.,

A press release posted on the website for the Australian regulatory agency did not describe what types of trades Citigroup allegedly made in shares of Patrick.

Citigroup shares most recently were trading up 17 cents to $47.45.

Over the past two years, Citigroup's shares have lagged its competitors. Many analysts on Wall Street say concern about Citigroup's regulatory issues has hurt the bank's stock.