Judge uneasy over Citigroup-SEC accord details

WASHINGTON (Reuters) - The federal judge reviewing a proposed Citigroup Inc settlement with the U.S. Securities and Exchange Commission expressed concern that the accord does not do enough to ensure that the bank's disclosures to investors will be adequate.

The proposed $75 million settlement stems from Citigroup's alleged failure in 2007 to reveal its mounting losses on subprime mortgages on a timely basis.

At a hearing on Friday, U.S. District Judge Ellen Segal Huvelle said she wanted greater assurance that the nation's third-largest bank by assets would maintain the improved disclosure practices it says it has adopted.

"There's nothing in here to address a flawed system; not a thing," she told lawyers for the bank and SEC.

Huvelle appeared satisfied with the size of the financial penalty, saying it "may be reasonable," but she also sought more details on how it would be distributed.

She directed both parties to address her concerns and present suggestions when the hearing resumes this afternoon.

The SEC had accused Citigroup of misleading investors by telling them from July to October 2007 that its exposure to subprime securities was only about $13 billion -- only to reveal that November that the sum was more than $52 billion.

Soaring losses from risky debt led to a series of bailouts that left the government owning one-third of Citigroup, a stake it has been reducing, and drive Citigroup shares down below $1 in March 2009 from above $50 less than two years earlier.

Huvelle had refused at an August 16 hearing to approve the $75 million settlement.

Her resistance recalled U.S. District Judge Jed Rakoff's rejection last September of a $33 million SEC settlement with Bank of America Corp over charges that the bank hid $15.8 billion of losses and $3.6 billion of bonus payouts at Merrill Lynch & Co, which it was buying.

Rakoff later approved a $150 million accord, but called even that "half-baked justice at best."

In afternoon trading on Friday, Citigroup shares were up 7 cents at $3.87 on the New York Stock Exchange.

The case is SEC v. Citigroup Inc, U.S. District Court, District of Columbia, No. 10-01277.

(Reporting by Rachelle Younglai; Writing by Jonathan Stempel, editing by Gerald E. McCormick)