* SEC case vs Brian Stoker headed for July 16 jury trial
* Judge Rakoff rejects Stoker bid to dismiss case
* Rakoff had rejected Citigroup's $285 mln SEC settlement
By Jonathan Stempel
July 10 A federal judge on Tuesday denied a
request by a former Citigroup Inc director to dismiss
regulatory fraud charges over his alleged role in putting
together and marketing a risky collateralized debt obligation.
U.S. District Judge Jed Rakoff in Manhattan denied a request
by Brian Stoker to dismiss U.S. Securities and Exchange
Commission charges over his alleged role in the transaction,
which caused more than $700 million of investor losses.
The same judge previously rejected the SEC's $285 million
fraud settlement with Citigroup over mortgage investments, while
allowing the regulator to continue its case against Stoker, the
only individual it charged.
The case arose from allegations that Citigroup, betting on a
housing downturn, in 2007 sold $1 billion of risky
mortgage-linked securities without telling investors it had
taken a $500 million "short" position on expectations some would
Stoker argued that any misstatements or omissions were not
material, but Rakoff said it is premature to dismiss the SEC
case, ahead of a scheduled July 16 jury trial.
"It is true that taking a proprietary short position in
order to profit from the falling housing market is not itself
evidence of fraud," he wrote. "But, there appears to be much
more to the evidence here."
John Keker and Jan Nielsen Little, who are lawyers for
Stoker, did not immediately respond to requests for comment.
A Citigroup spokeswoman declined to comment, but said Stoker
no longer works for the New York-based bank.
The SEC claimed that Stoker had been the main deal manager
for the Class V Funding III CDO transaction, and had been
principally responsible for its marketing materials.
It contended that these materials failed to reveal
Citigroup's role in choosing the underlying debt, though a unit
of Credit Suisse Group AG was acting as collateral
manager, and concealed the $500 million short position.
Rakoff said it is an open issue as to whether Citigroup's
role "was unusual enough to merit different disclosures from
those required for a traditional CDO."
He also said a jury should decide whether Stoker's actions
helped the bank to collect improper fees and profit.
In rejecting Citigroup's $285 million settlement last
November, Rakoff had said the SEC's failure to require the bank
to admit or deny its charges left him no way to decide whether
the accord was fair and in the public interest.
That decision threatened to undermine the SEC's decades-long
practice in reaching settlements with companies.
In March, a federal appeals court in New York stopped just
short of reversing the decision, saying federal courts cannot
"dictate policy to executive administrative agencies."
The appeals court is expected this year to consider whether
to reverse Rakoff's decision. Because the SEC and Citigroup want
this outcome and are on the same side, the court appointed an
outside lawyer to argue for Rakoff's position.
The case is SEC v. Stoker, U.S. District Court, Southern
District of New York, No. 11-07387.