As the SEC decides how to proceed in its efforts to settle fraud charges against Citigroup, the conventional wisdom is that the agency let the bank off light in its zeal to notch a victory against a high profile client.

But it may be that the SEC's case against the bank was a lot weaker than many people assumed. That's the premise of a recent commentary in the New York Times, which notes that there are two big issues. For one, the Times described role of Credit Suisse, writing that "the composition of the Eligible Collateral Debt Securities will be determined by the selections of the Manager." What was left unsaid was that Citigroup would make recommendations, and those recommendations, while not necessarily binding, were accepted.

So is this completely misleading? 

One would have to say yes. Is it fraudulent? Some would say yes, but  there are some mitigating issues. As for the vaunted short position, the column notes the language that the bank "may be expected to have interests that are adverse" to buyers of the security and "may provide assets ...without any off-setting positions."

Citigroup has said it was aiming to sell its short position to others. All this suggests that bank indeed misled customers, but it may be that $285 million was actually a generous deal. Both sides no doubt would like to avoid a trial. With that as a goal, the deal was more than palatable. If only the judge agreed. But what if they went to trial and the bank prevailed? Would that be justice?

For more:
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