* SEC charged Citigroup over marketing of $1 bln CDO
* Manhattan federal judge had rejected $285 mln accord
* Evidence from Stoker trial could make review easier
By Jonathan Stempel
Aug 13 (Reuters) - The Manhattan federal judge who last year rejected the U.S. Securities and Exchange Commission's civil fraud settlement with Citigroup Inc is standing by that decision, but may be ready for a second look at the $285 million accord after presiding over a related trial.
In a Monday filing with the 2nd U.S. Circuit Court of Appeals in New York, a lawyer representing U.S. District Judge Jed Rakoff said the Nov. 28, 2011 rejection was proper, accusing the SEC and Citigroup of seeking a "rubber stamp" and failing to offer "any evidence of any kind" to justify it.
The lawyer, John "Rusty" Wing, also questioned why the $95 million fine included in the penalty was less than one-fifth the fine that Goldman Sachs Group Inc accepted in a $550 million settlement the prior year over similar conduct.
But now that Rakoff has completed a trial in which a jury on July 31 cleared former Citigroup mid-level executive Brian Stoker of negligence, the judge "has a substantial evidentiary record" upon which to review the settlement if the appeal is denied or dismissed, Wing wrote.
SEC spokesman John Nester declined immediate comment. Citigroup spokeswoman Danielle Romero-Apsilos declined to comment.
Citigroup's settlement was intended to resolve charges that the third-largest U.S. bank in 2007 created a $1 billion collateralized debt obligation without telling investors it was betting against the underlying mortgage securities.
The SEC had said Stoker, who helped Citigroup prepare sales materials for the CDO, should have revealed the bank's bet.
Stoker, the only individual charged, countered he was being made a scapegoat.
While the jury ruled in his favor, it issued an unusual statement encouraging the SEC to continue investigating the financial services industry.
Few senior banking executives have been accused of wrongdoing in connection with transactions leading up to the 2008 financial crisis.
Rakoff's rejection of the Citigroup settlement challenged the decades-long practices of the SEC and other federal agencies of letting companies settle cases without admitting wrongdoing.
He forced the SEC in 2010 to strengthen a civil fraud settlement with Bank of America Corp over that bank's takeover of Merrill Lynch & Co, a battle that Wing said the SEC and Citigroup "were intimately familiar with."
While the outcome of Rakoff's appeal is unclear, the 2nd Circuit has chastised the judge for having appeared to overstep his authority, saying it is not "the proper function of federal courts to dictate policy to executive administrative agencies."
It also said forcing an admission of liability might even hurt the public interest because it would "in most cases undermine any chance for compromise."
Wing is a former colleague of Rakoff in the U.S. Attorney's office in Manhattan. The 2nd Circuit appointed him to argue for Rakoff because the SEC and Citigroup took the same side.
The case is SEC v. Citigroup Global Markets Inc, 2nd U.S. Circuit Court of Appeals, No. 11-5227.