(Reuters) – The U.S. Securities and Exchange Commission got a fresh dressing-down from the judge who rejected its $285 million settlement with Citigroup Inc, as he said the regulator kept him out of the loop on its efforts to salvage the case.

In his latest sharply-worded order, U.S. District Judge Jed Rakoff chastised the SEC for not telling him it had filed an emergency request with an appeals court to put the case on hold, after making the same request to him.

So when Rakoff on Tuesday issued a ruling opposing any delay in the case, he was beaten to the punch; 78 seconds earlier, the 2nd U.S. Circuit Court of Appeals had granted the SEC the temporary halt it sought.

He also accused the SEC and Citigroup of potentially "misleading" the court, saying they called him around 3:30 p.m. EST (2030 GMT) on Tuesday to discuss the case, without mentioning the filing with the 2nd Circuit.

Less than an hour later, the 2nd Circuit ruled, and so did Rakoff. That 2nd Circuit order negated the work Rakoff said he had done over the weekend to get a ruling to the SEC as quickly as he could.

Rakoff wrote that he "spent the intervening Christmas holiday considering the parties' positions and drafting an opinion, so that (the court) could file it on December 27, i.e. the first business day after the Christmas holiday."

To prevent a recurrence, Rakoff ordered the SEC and Citigroup to "promptly notify" him of any filings they make in the appeals court.

An SEC spokeswoman had no immediate comment. A Citigroup spokeswoman declined to comment.

The $285 million settlement was intended to resolve charges that Citigroup sold risky mortgage-linked securities in 2007 without telling investors that it was betting against the debt, and causing more than $700 million of losses.

In rejecting the accord in November, Rakoff said the SEC's failure to require Citigroup to admit or deny its charges left him no way to know whether the settlement was fair. Rakoff also called the payout "pocket change" for the third-largest U.S. bank.

The 2nd Circuit case is SEC v Citigroup Global Markets Inc, 2nd U.S. Circuit Court of Appeals, No. 11-05227. The district court case is SEC v. Citigroup Global Markets Inc, U.S. District Court, Southern District of New York, No. 11-07387.

(Reporting By Aruna Viswanatha and Jonathan Stempel; Editing by Tim Dobbyn)

NEW YORK (Reuters) – The top U.S. market regulator is appealing a judge's rejection of a major Citigroup Inc civil securities fraud settlement, according to court papers filed on Thursday.

The $285 million pact was rejected by U.S. District Judge Jed Rakoff last month as "pocket change" for Citigroup. In that ruling, the judge criticized the U.S. Securities and Exchange Commission's policy of settling lawsuits without having defendants admit or deny wrongdoing.

The SEC said in a statement that it believes Rakoff erred "by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits."

Such appeals are unusual for the regulator, which is used to hammering out deals with defendants and having them approved by judges.

Rakoff's November 28 ruling threw out a deal over the sale of toxic mortgage debt. The judge wrote at the time that the settlement was "neither reasonable, nor fair, nor adequate, nor in the public interest." He set a trial date of July 16, 2012.

The SEC's challenge will be reviewed by the 2nd U.S. Circuit Court of Appeals in New York. That could delay the trial.

Citigroup also disagreed with the judge's ruling. In a statement on Thursday, the bank said it believes the settlement "fully complies with long-established legal standards. In the event the case is tried, we would present substantial factual and legal defenses to the charges."

In its complaint, the SEC had accused Citigroup of selling a $1 billion mortgage-linked collateralized debt obligation, Class V Funding III, in 2007 as the housing market was beginning to collapse, and then betting against the transaction.

The SEC said the CDO caused more than $700 million of investor losses. One Citigroup employee, director Brian Stoker, was charged by the SEC, and is contesting those charges.

Rakoff has been a thorn in the side of the SEC. In 2009, he rejected its initial proposed settlement with Bank of America Corp over its takeover of Merrill Lynch & Co.

The case is SEC v Citigroup Global Markets Inc, U.S. District Court, Southern District of New York, No. 11-07387.

(Reporting by Grant McCool, editing by Bernard Orr)

(Reuters) – Enforcement staff of the Securities and Exchange Commission may request the commissioners leading the agency that they appeal last month's rejection by a U.S. district judge of a proposed $285 million settlement with Citigroup, the Wall Street Journal said, citing people familiar with the matter.

In November, Judge Jed Rakoff angrily threw out Citigroup's proposed settlement over the sale of toxic mortgage debt, excoriating the SEC over how it reaches corporate fraud settlements.

Talks aimed at hammering out several other agreements between the agency and financial firms it has accused of misconduct before or during the financial crisis have stalled, people told the Journal.

"Everything's come to a halt because the SEC doesn't know what to ask for anymore in the settlements," one of the people told the newspaper.

If SEC commissioners approve, the agency could appeal the November 28 ruling to the Second Circuit Court of Appeals, people familiar with the situation told the newspaper.

An SEC spokesman declined to comment to the Journal on the agency's plans. Officials at the SEC could not immediately be reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Sakthi Prasad in Bangalore; Editing by Matt Driskill)

A federal judge in New York refused on Monday to endorse a $285 million consent agreement with the SEC that would have allowed Citigroup Global Markets, Inc., to avoid any admission of wrongdoing in a deceptive securities transaction that earned Citigroup $160 million in profits while investors lost $700 million.

Under terms of the proposed agreement, Citigroup was not required to admit or deny any illegal conduct alleged in a Securities and Exchange Commission complaint, and the firm would pay what the judge termed “only very modest penalties.”

“If the allegations of the complaint are true, this is a very good deal for Citigroup; and, even if they are untrue, it is a mild and modest cost of doing business,” US District Judge Jed Rakoff wrote in a 15-page opinion.

“It is harder to discern from the limited information before the court what the SEC is getting from this settlement other than a quick headline,â€

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“By the SEC’s own account, Citigroup is a recidivist, and yet, in terms of deterrence, the $95 million civil penalty that the Consent Judgment proposes is pocket change to any entity as large as Citigroup,â€

Instead of accepting the agreement between Citigroup and the SEC, Judge Rakoff told both sides to be prepared to go to trial on July 16.

SEC officials defended the proposed settlement, saying the government was unlikely to obtain more if it took Citigroup to court. The SEC enforcement director, Robert Khuzami, said the settlement helped free up investigative resources for other cases, according to the Associated Press.

At issue in the case was a 2007 effort by Citigroup to create and market a billion-dollar fund of problematic mortgage-backed securities just as the nation’s housing bubble was about to burst. The arrangement allowed Citigroup to dump assets of questionable quality on misinformed investors.

Citigroup told prospective investors that the fund’s assets had been hand-picked by an independent investment adviser, when, in fact, Citigroup used the fund to jettison $500 million in risky assets.

In addition, unknown to the investors, Citigroup had also taken a short position on those same assets, counting on the securities losing their value. When they did, Citigroup realized net profits of $160 million in addition to $34 million in fees it charged to set up the investment. In contrast, the investors lost everything – more than $700 million.

The SEC undertook a four-year investigation. The SEC announced the settlement agreement Oct. 19. It called for Citigroup to pay $285 million. That amount included a $95 million fine, and disgorgement of the $160 million in profits and $30 million in interest.

The agreement asked the court to order Citigroup to refrain from future violations of specific provisions of the securities laws, and to adopt a series of internal policing measures.

The proposed agreement does not require the SEC to use any of its recovered funds to compensate defrauded investors. In addition, the agreement undercuts efforts by the investors to recover their losses by suing Citigroup, according to the judge.

“The combination of charging Citigroup only with negligence and then permitting Citigroup to settle without either admitting or denying the allegations deals a double blow to any assistance the defrauded investors might seek to derive from the SEC litigation [by filing a private lawsuit],” Rakoff said.

Private investors may not sue on claims of negligence and since Citigroup is not required to admit wrongdoing, the settlement may not be used as evidence to support a civil lawsuit by investors.

In most cases, judges routinely approve proposed settlement agreements involving government regulatory agencies. Not Judge Rakoff.

The judge complained in his order that he had been provided no facts upon which to render an independent judgment about the agreement since Citigroup was not required under the agreement to admit any wrongdoing.

“The court concludes, regretfully, that the proposed Consent Judgment is neither fair, nor reasonable, nor adequate, or in the public interest,” Rakoff said.

“This is because it does not provide the court with a sufficient evidentiary basis to know whether the requested relief is justified under any of these standards.”

The judge added: “The court, and the public, need some knowledge of what the underlying facts are: for otherwise, the court becomes a mere handmaiden to a settlement privately negotiated on the basis of unknown facts, while the public is deprived of ever knowing the truth in a matter of obvious public importance.”

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WASHINGTON – The government is telling a federal judge that $285 million is a fair penalty for Citigroup Inc. to pay to settle charges that it misled buyers of a complex mortgage investment ahead of the housing bust.

U.S. District Judge Jed Rakoff in Manhattan has blocked the settlement that the Securities and Exchange Commission reached with Citigroup last month. He implied that the settlement was insufficient given the charges and asked the government to justify the amount.

The SEC said Monday that $285 million is close to what it would have won in a trial. The sum came after an extensive investigation and will go to investors harmed by Citigroup’s conduct, the SEC said.

The SEC said the bank bet against the investment in 2007 and made $160 million, while investors lost millions.

“The court should approve the proposed (settlement) as fair, adequate and reasonable,” the SEC said in its filing.

In the settlement, Citigroup neither admitted nor denied the SEC’s allegations.

The $285 million was the largest amount to be paid by a Wall Street firm accused of misleading investors before the financial crisis since Goldman Sachs & Co. agreed to pay $550 million to settle similar charges last year. JPMorgan Chase & Co. resolved similar charges in June and paid $153.6 million.

All the cases have involved complex investments called collateralized debt obligations. Those are securities that are backed by pools of other assets, such as mortgages.

Citigroup’s proposed payment includes the fees and profits it earned, plus $30 million in interest and a $95 million penalty.

Rakoff had asked the SEC why that penalty was less than one-fifth of the $535 million penalty imposed on Goldman Sachs in the similar case.

The SEC said it charged Goldman Sachs with securities law violations that involved intent to defraud, while the alleged fraud by Citigroup resulted from negligence on the part of the bank. That warrants a smaller penalty than intentional fraud, the agency said.

NEW YORK – A federal judge cast doubt Thursday on the fairness of a $285 million settlement that Citigroup reached with the Securities and Exchange Commission, saying lawyers need to explain how the deal is sufficient to make such serious securities fraud allegations go away.

U.S. District Judge Jed Rakoff in Manhattan scheduled a Nov. 9 hearing on the deal announced earlier this month, questioning why he should approve the deal when Citigroup Inc. neither admits nor denies wrongdoing.

“Given the SEC’s statutory mandate to ensure transparency in the financial market place, is there an overriding public interest in determining whether the SEC’s charges are true?” the judge asked lawyers in a written order. “Is the interest even stronger when there is no parallel criminal case?”

Citigroup spokeswoman Danielle Romero-Apsilos declined to comment Thursday.

The SEC brought civil fraud charges against Citigroup earlier this month, saying that it misled buyers of a complex mortgage investment just as the housing market was starting to collapse. The SEC said the Wall Street bank bet against the investment in 2007 and made $160 million in fees and profits while investors lost millions.

The $285 million settlement was to include the fees and profit Citigroup earned, plus $30 million in interest and a $95 million penalty. The SEC said the money would be returned to investors.

Rakoff asked why the penalty would be paid in large part by Citigroup and its shareholders rather than culpable individual offenders.

“How can a securities fraud of this nature and magnitude be the result simply of negligence?” he asked.

The judge also questioned how the $95 million penalty was determined and why it was less than one-fifth the amount imposed last year in a case against Goldman Sachs Group Inc.

“What reason is there to believe this proposed penalty will have a meaningful deterrent effect?” he asked.

Citigroup received $45 billion as part of the $700 billion government bailout at the height of the financial crisis in 2008. Regulators at the time worried that Citigroup was on the brink of failure.

The judge also questioned how the SEC would ensure compliance with the terms of the deal. He asked lawyers to describe how many contempt proceedings against large financial entities the SEC has brought in the last decade related to prior consent judgments.

WASHINGTON – Citigroup has agreed to pay $285 million to settle civil fraud charges that it misled buyers of complex mortgage investments just the housing market was starting to collapse.

The Securities and Exchange Commission said Wednesday that the big Wall Street bank bet against the investors in 2007 and made $160 million in fees and profits. Investors lost millions.

The payment includes the fees and profit Citigroup earned, $30 million in interest and a $95 million penalty. The money will be returned to investors in the deal, the SEC said.

Citigroup neither admitted nor denied the SEC’s allegations in the settlement.

“We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” Citigroup said in a statement.

The penalty is the biggest targeting Wall Street firms that mislead investors ahead of the 2008 financial crisis since Goldman Sachs & Co. paid $550 million to settle similar charges last year. JPMorgan Chase & Co. also settled similar charges in June and paid $153.6 million.

All of the cases have involved so-called collateralized debt obligations. Those are securities backed by pools of other assets.

In a civil lawsuit filed Wednesday, the SEC said Citigroup traders discussed in late 2006 the possibility of buying financial instruments to essentially bet on the failure of the mortgage assets being put together in the deal.

Rating agencies downgraded most of the investments that Citigroup had bundled together just as many homeowners stopped paying their mortgages in late 2007. That pushed the investment into default and cost its buyers — hedge funds and investment managers — several hundred million dollars in losses.

Among the biggest losers were Ambac, a bond insurer, and BNP Paribas, a European bank. Ambac had sold Citigroup protection against losses on the investment, allowing Citigroup to bet against it.

___

AP Business Writer Pallavi Gogoi contributed to this report.

WASHINGTON – Citigroup has agreed to pay $285 million to settle civil fraud charges that it misled buyers of complex mortgage investments just the housing market was starting to collapse.

The Securities and Exchange Commission said Wednesday that the big Wall Street bank bet against the investors in 2007 and made $160 million in fees and profits. Investors lost millions.

The payment includes the fees and profit Citigroup earned, $30 million in interest and a $95 million penalty. The money will be returned to investors in the deal, the SEC said.

Citigroup neither admitted nor denied the SEC’s allegations in the settlement.

“We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” Citigroup said in a statement.

The penalty is the biggest targeting Wall Street firms that mislead investors ahead of the 2008 financial crisis since Goldman Sachs & Co. paid $550 million to settle similar charges last year. JPMorgan Chase & Co. also settled similar charges in June and paid $153.6 million.

All of the cases have involved so-called collateralized debt obligations. Those are securities backed by pools of other assets.

In a civil lawsuit filed Wednesday, the SEC said Citigroup traders discussed in late 2006 the possibility of buying financial instruments to essentially bet on the failure of the mortgage assets being put together in the deal.

Rating agencies downgraded most of the investments that Citigroup had bundled together just as many homeowners stopped paying their mortgages in late 2007. That pushed the investment into default and cost its buyers — hedge funds and investment managers — several hundred million dollars in losses.

Among the biggest losers were Ambac, a bond insurer, and BNP Paribas, a European bank. Ambac had sold Citigroup protection against losses on the investment, allowing Citigroup to bet against it.

___

AP Business Writer Pallavi Gogoi contributed to this report.

WASHINGTON – Citigroup has agreed to pay $285 million to settle civil fraud charges that it misled buyers of complex mortgage investments just the housing market was starting to collapse.

The Securities and Exchange Commission said Wednesday that the big Wall Street bank bet against the investors in 2007 and made $160 million in fees and profits. Investors lost millions.

The payment includes the fees and profit Citigroup earned, $30 million in interest and a $95 million penalty. The money will be returned to investors in the deal, the SEC said.

Citigroup neither admitted nor denied the SEC’s allegations in the settlement.

“We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” Citigroup said in a statement.

The penalty is the biggest targeting Wall Street firms that mislead investors ahead of the 2008 financial crisis since Goldman Sachs & Co. paid $550 million to settle similar charges last year. JPMorgan Chase & Co. also settled similar charges in June and paid $153.6 million.

All of the cases have involved so-called collateralized debt obligations. Those are securities backed by pools of other assets.

In a civil lawsuit filed Wednesday, the SEC said Citigroup traders discussed in late 2006 the possibility of buying financial instruments to essentially bet on the failure of the mortgage assets being put together in the deal.

Rating agencies downgraded most of the investments that Citigroup had bundled together just as many homeowners stopped paying their mortgages in late 2007. That pushed the investment into default and cost its buyers — hedge funds and investment managers — several hundred million dollars in losses.

Among the biggest losers were Ambac, a bond insurer, and BNP Paribas, a European bank. Ambac had sold Citigroup protection against losses on the investment, allowing Citigroup to bet against it.

___

AP Business Writer Pallavi Gogoi contributed to this report.

WASHINGTON – The internal watchdog of the Securities and Exchange Commission is investigating an allegation that the agency’s enforcement chief gave a break to two Citigroup executives when the bank settled charges of misleading investors.

Inspector General David Kotz confirmed Tuesday that his office recently began a review at the request of Sen. Charles Grassley, R-Iowa. Grassley passed the anonymous written allegation to Kotz. It said that the SEC enforcement director, Robert Khuzami, directed his staff to drop planned civil fraud charges against the executives after having a “secret conversation” with an attorney representing Citigroup who is “a good friend” of Khuzami.

An SEC spokesman says the Citigroup settlement followed a careful review of evidence and held the executives accountable.

Kotz’s review was reported earlier Tuesday by Bloomberg News.

Citigroup agreed in July to pay $75 million to settle the SEC’s charges it misled investors on about $50 billion in potential losses from securities linked to subprime mortgages. The agency also settled charges with former Chief Financial Officer Gary Crittenden, who agreed to pay a $100,000 civil penalty, and the former head of investor relations, Arthur Tildesley Jr., who agreed to pay $80,000.

The charges against Crittenden and Tildesley involved negligence rather than fraud. They neither admitted nor denied the allegations under terms of the settlement.

SEC spokesman John Nester said Tuesday the settlement “appropriately held the company and individuals accountable. It was the product of a thorough investigation and a careful evaluation of the evidence and the applicable law.”

“We stand ready to assist and cooperate fully” with the inspector general’s review, Nester said in a statement.

Jon Diat, a spokesman for New York-based Citigroup, declined to comment.

Grassley said that if the allegation is true, it is “exactly” the sort of conduct that he and another senior members of the Senate Judiciary Committee urged the SEC to stop in their report on the agency’s handling of an insider trading case.

“It isn’t appropriate for senior SEC officials to secretly meet with lawyers for the other side and then make major decisions about the case without the knowledge or involvement of the career government attorneys doing the day-to-day work,” Grassley said. “The SEC supposedly implemented a policy to stop this.”

A federal judge initially declined in August to approve the settlement, asking SEC attorneys why the bank’s shareholders should be punished for the alleged misdeeds of Citigroup executives. She approved it in October after Citigroup pledged to maintain new policies it adopted to avoid similar violations in the future.

The anonymous letter also was sent to Rep. Darrell Issa, R-Calif., the incoming chairman of the House Oversight and Government Reform Committee.